Chipmaker Micron (MU) is banking on the upcoming 5G trend. As 5G networks ramp up around the globe, the semi-conductor player is expected to provide many of the components needed to achieve 5G’s promise; faster data processing, lower latency and expanded storage capacity.
However, the catalyst hasn’t borne fruit yet. Micron has lagged behind its peer group this year, unable to fully recover from the COVID slump. Micron’s share price is still roughly flat year-to-date compared to the SOXX’s 9% uptick. But a recent pre-earnings announcement that sales for the quarter (FQ3) were stronger than expected along with the company anticipating revenue growth in F4Q has changed the narrative somewhat.
Or has it? According to Deutsche bank analyst Sidney Ho, investors are concerned that a “weak demand environment could shorten the upcycle of the memory industry,” and the revised figures have left some investors puzzled by Micron’s confidence.
But the analyst argues Micron’s recent estimate boosting came as a result of conservative guidance in the first place. Previous COVID-driven supply chain disruptions kept a lid on expectations, while to an extent, unexpected strong demand for server DRAM in C2Q, “with a meaningful price increase of more than +20% q/q,” played their part in the estimate boosts.
As for F4Q, the company expects quarter-over-quarter growth to come in between flat and up by 7%. These guidance figures are actually low, Ho claims, and indicate the company forecasts ASPs (average selling price) to come down as “over the past 5 years bit growth in F4Q for both DRAM and NAND averaged 12-13% q/q on a 13-week basis.”
“Considering this F4Q has 14 weeks (and we do think there will be shipment in the extra week), we don’t think there is a big disconnect between the company’s tone and recent data points, but rather investors’ low expectations following last quarter’s earnings call…” Ho explained.
To this end, Ho rates Micron a Buy along with a $60 price target. The implication for investors? Upside of 12% from current levels. (To watch Ho’s track record, click here)
The Majority of the Street back Ho’s prognosis. Based on 19 Buys, 6 Holds and 1 Sell, Micron has a Moderate Buy consensus rating. At $63.78, the stock forecast could provide investors with gains of 19% over the next 12 months.
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