But that’s just what BMO Capial’s Ambrish Srivastava did this morning, lifting his rating on Micron (ticker: MU) to Outperform from Market Perform, with a new target price of $110, up from $90. Srivastava writes in a research note that the core of his thesis is that he sees a continued constrained memory-chip-supply environment into calendar 2022, driven by a combination of supply dynamics, capital spending discipline and strong demand drivers.
The analyst writes that this is not a call about the quarterly earnings report just ahead—but the timing certainly adds some intrigue to the upgrade.
Expectations for Micron have been gyrating in recent months, and the focus is specifically on the demand and pricing dynamics in memory chips, in particular for DRAM, which accounts for about 70% of Micron’s sales, with NAND flash memory making up most of the rest.
For the quarter ended in May, Micron originally projected revenue ranging from $6.9 billion to $7.3 billion. CEO
told investors in a virtual J.P. Morgan investment conference late last month that the total will be at or above the high end of the range—and he said non-GAAP gross margin and earnings per share would likely be strong in the quarter. Guidance had called for non-GAAP profits of $1.62 a share, give or take 7 cents, with non-GAAP margins of 41.5%, give or take a percentage point. Street consensus calls for $7.23 billion in revenue and profits of $1.71 a share.
Srivastava points out that Micron stock has underperformed the overall semiconductor group year to date—appreciating about 10%, versus 20% for the sector. “We believe there is a fair amount of concern related to near-term pricing driven by inventory digestion in handsets in China and an eventual slowdown in PCs, and uncertainty around the longevity of the cycle in general,” he writes. “While some concerns are valid, we see a vastly different scenario farther out. We see the DRAM industry [coming] into a supply-demand imbalance into 2022 as well. We see both dynamics on the supply side and on the demand side driving this imbalance.”
He sees strong demand driven from the server and datacenter market and continued growth in 5G mobile phones more than offsetting expected weaker demand from the PC market.
Srivastava now sees Micron reporting profits of $5.85 a share for the August 2021 fiscal year, up from a previous forecast of $5.40; for fiscal 2022, he now sees $12.20 a share, up from $10.75.
Micron stock is up 1.1%, to $83.82.
Write to Eric J. Savitz at email@example.com