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Nomura Initiates Micron At Neutral, Sees Positives And Negatives To The Stock

Wayne Duggan

Micron Technology, Inc. (NASDAQ: MU) is back on track in 2019 after a rough 2018, but one Wall Street analyst says investors can expect more mixed performance from Micron shares ahead.

The Analyst

Nomura Instinet analyst David Wong initiated coverage of Micron with a Neutral rating and $45 price target.

The Thesis

Wong said in a note there are several positives to investing in Micron at this point:

  • Micron’s profitability profile has improved dramatically, hitting record gross margins of between 50 and 60 percent in recent years.
  • Competition in the memory market has consolidated to just three primary players: Micron, Hynix and Samsung Electronics Co Ltd (OTC: SSNLF).
  • When the memory market recovery takes hold, Micron should be able to maintain an earnings multiple in the high single-digits or low double-digits.
  • However, Micron is still facing too many headwinds for Wong to recommend the stock:
  • The global DRAM and NAND markets are still in a cyclical downturn, with January and February sales dropping 28 percent and 33 percent, respectively.
  • While competition has consolidated, Samsung has much more financial resources than Micron to improve its technology.
  • Memory manufacturing is a capital-intensive business, with Micron’s capex as a percent of revenue peaking at above 40 percent in recent years.

As a result, Wong applied an earnings multiple of just 10 to his fiscal 2021 EPS estimate to arrive at his $45 price target.

“This multiple represents a PEG ratio of about 1, reflecting Micron’s moderate growth potential applied to an earnings estimate that represents a normal period of profitability (between peak and trough),” he wrote.

Price Action

Micron's stock traded higher by 1.3 percent to $42.36 per share Tuesday morning.

Related Links:

Morgan Stanley Downgrades Micron, Says Street Outlook 'Too Optimistic'

Nomura Initiates Coverage On Semi Stocks, Picks AMD And Intel As Winners

Latest Ratings for MU

Date Firm Action From To
Apr 2019 Nomura Initiates Coverage On Neutral
Apr 2019 Cowen & Co. Downgrades Outperform Market Perform
Apr 2019 Morgan Stanley Downgrades Equal-Weight Underweight

View More Analyst Ratings for MU
View the Latest Analyst Ratings

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