Why Analysts Raised Their Price Targets and Earnings Estimates for Micron
Analysts’ price target
So far in this series, we’ve seen that several industry data points indicate the memory market uptrend would continue in calendar 2017 and probably in 2018. This has raised optimism among the Wall Street analysts that monitor Micron Technology (MU).
The analysts have raised their bearish price target for Micron from $30.00 in June 2017 to $36.00 in September 2017. Even the bearish price target is higher than Micron’s 52-week high of $32.00. The consensus target is $40.00. Analysts calculate the price target of a stock by applying a price ratio to their estimates for the company’s earnings and cash flows for the next few quarters.
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Goldman Sachs analyst Mark Delaney upgraded Micron Technology from “neutral” to “buy” and raised his price target on the stock from $33.00 to $40.00, representing an upside of 15% from its current trading price of $34.60.
Delaney noted that Goldman Sachs underestimated the memory upcycle when it downgraded Micron in May 2017. At that time, DRAM (dynamic random access memory) investment rose 40% YoY (year-over-year). However, DRAM makers were more disciplined with their capital spending than expected.
Delaney reiterated that the memory upturn is currently in its mid to later stages and that this scenario could change anytime. However, after listening to industry discussions, he became optimistic. He now expects DRAM prices to increase in 4Q17 and in 2018 as supply conditions remain tight. He also expects NAND (negative AND) prices to remain flat or increase in 4Q17.
Delaney expects mobile DRAM prices to increase 10% in 2H17 as manufacturers focus their capacity to manufacture server DRAM. He expects overall DRAM prices to increase 20% to 1Q18 and 25% in 2018.
With such strong memory pricing, Delaney expects Micron to report better-than-expected earnings in fiscal 2018. He raised his fiscal 2018 EPS (earnings per share) estimate for Micron from $5.15 to $7.60, which is significantly above the consensus estimate of $6.24.
J.P. Morgan analyst Harlan Sur is bullish on Micron. On August 29, 2017, he stated that memory prices would return to its normal course of sequential declines in 2018. However, this would not impact Micron’s margins, as the declining prices would be offset by cost reductions achieved through technology transition.
On September 12, Sur stated that increased DRAM content in Apple’s (AAPL) iPhone would benefit Micron in 2017 and 2018. On that day, Micron’s stock rose 2.6%.
Many analysts have revised their fiscal 4Q17 earnings estimate for Micron. We will look into this in the next part of the series.