The stock market is exhibiting strong signs of a bubble. However, you wouldn’t know it if you were chipmaker Micron (MU). The extended rally has almost completely bypassed the large-cap semiconductor player. While several of Micron’s peers have surged ahead in 2020, Micron’s circuit has failed to kick into gear. To wit, shares are down by 16% so far this year.
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The cyclical nature of the semiconductor sector in which Micron operates is one finely balanced on supply and demand dynamics. As a result of this subtly shifting landscape, last week Micron updated investors on its expectations for the upcoming quarters. Expecting results from the current quarter (FQ4) to be more “back-end loaded,” than the initial forecast, the company nevertheless kept revenue, margins and EPS the same. However, looking further ahead, for F1Q (Nov), Micron expects revenue to come in below the initial guidance of $5.4 to 5.6 billion, and have warned investors that cloud customers were likely to fork out less in 2HCY20 than they did in the first half of the year.
After fielding calls from investors looking to touch base on Micron’s developments, Deutsche Bank analyst Sidney Ho believes investor sentiment splits into two distinct camps – one bullish and the other bearish. The bulls point to “more rational pricing and capex behavior by key memory suppliers,” Micron’s improved set up as a company which “should limit the downside of the stock,” and the expected uptick in demand “driven by 5G smartphones, data centers and game consoles.”
On the other hand, the bears point out pricing corrections are usually worse than initially expected which could see Micron’s stock plummet further and a later than expected recovery on the demand side due to the resurgence in COVID-19 cases.
The 5-star analyst has his own views on the matter, and said, “Our take is that we continue to like the secular story of MU and the memory industry, but we would like to get more clarity about the magnitude and duration of the current downturn… We are leaving our F4Q revenue/EPS estimates unchanged at $5.90b/$0.95, vs. guidance mid-points of $6.00b/$1.05, but we also think risk is to the downside. For F1Q we are further reducing our F1Q revenue/EPS estimates from $5.43b/$0.65 to $5.11b/$0.54.”
To this end, Ho rates MU a Hold along with a $48 price target, which implies a modest upside of 6% from current levels. (To watch Ho’s track record, click here)
The rest of the Street has a more bullish tone. Based on 17 buys, 8 Holds and 1 Sell, Micron holds a Moderate Buy consensus rating. With an average price target of $63.50, the analysts expect shares to appreciate by 40% over the next 12 months. (See Micron stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
