Analysts’ price targets for Micron
Micron (MU) investors are reacting to memory market cyclicality. However, KLA-Tencor’s (KLAC) weaker guidance for the second half of 2018 at its recent Citi Global 2018 conference made some analysts bearish on Micron.
Of the 34 analysts monitoring Micron, 26 have a “buy” recommendation, and the remaining eight have a “hold” recommendation. There are more “hold” recommendations for rival Western Digital (WDC).
Micron has a median price target of $80, representing a 78% upside from its current price. Its bearish price target of $60 also presents a 33.6% upside, indicating that analysts overall are optimistic on Micron. It’s a similar case for WDC, with its stock trading 22.7% below its bearish price target of $70.
Micron’s exposure to memory market cyclicality
According to DRAMeXchange estimates, DRAM (dynamic random access memory) prices are expected to peak in the third quarter and start falling in 2019, bringing an end to the nine-quarter DRAM price increase. DRAMeXchange estimates that DRAM price growth will slow down from 76% in 2017 to 30% in 2018 and then fall 15%–25% in 2019. Since Micron earns 71% of its revenue from DRAM, a decline in DRAM prices would impact its earnings.
Analysts who are bullish on Micron are attracted by the low stock price and its strong fundamentals. Bearish analysts are concerned about the higher-than-expected declines in DRAM and NAND (negative AND) prices. Bullish analysts do acknowledge that there is a weakness in memory prices, but they believe Micron’s business environment is favorable.
Can Micron mitigate the impact of cyclicality?
Increasing memory demand in cloud computing and AI applications present a strong growth opportunity. At the 2018 Analyst Day, Micron stated that AI servers need six times more DRAM and two times more SSD (solid state drive) than a standard server. Cloud companies are increasing their capital spending threefold by 2021 to prepare for AI. Another growth catalyst is autonomous vehicles. But it remains to be seen how these catalysts play out in demand-supply dynamics.
Next, let’s take a look at Micron’s valuation.
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