Low demand in PC market is behind Micron’s poor performance
On June 26, 2015, Micron (MU) shares fell ~19%. Micron failed to meet Wall Street expectations on both revenues and earnings in fiscal 3Q15. In its 3Q15 earnings release, Micron management blamed the company’s disappointing results on the sluggish demand for PCs (personal computers) and a 10% sequential decline in dynamic random access memory (or DRAM) prices. Micron expects this sluggishness to continue, and as a result, the company provided tepid 4Q15 revenue guidance.
According to the International Data Corporation (or IDC), the global PC monitor market witnessed a decline in shipments in 1Q15. Companies shipped just over 29 million units, which is a decline of 12.0% compared to 1Q14. As you can see in the above chart, among the five leading PC vendors—Dell, Samsung, HP (HPQ), LG, and Lenovo—only Lenovo witnessed a year-over-year growth of 1.8% in 1Q15.
Weakness in the PC sector pushes analysts to lower expectations
Micron, citing “weakness in the PC sector” for its poor performance, prompted various research firms such as Deutsche Bank, Goldman Sachs, and Morgan Stanley to lower their 12-month price targets on Micron stock. Deutsche Bank revised its target from $19 to $17. Goldman Sachs lowered it from $33 to $29.
Out of 35 analysts covering the stock, 27 have a “buy” recommendation, four have a “sell” recommendation, and four have a “hold” recommendation for Micron. The analyst stock price target for the firm is $29.97 with a median target estimate of $30. Micron is thus trading at a discount of 37% with respect to its median target and is an attractive buy at current levels.
If you’re bullish about Micron Technology, you can invest in the Technology Select SPDR (XLK). XLK invests about 0.77% in Micron.