Analyst ratings for Micron
So far in this series, we have seen that Micron Technology (MU) and Western Digital (WDC) stock bottomed out in 2018 as they moved from a cyclical upturn to a downturn. However, Micron strengthened its earnings and balance sheet and reduced its production cost to position itself better for a downturn.
The downturn lowered Wall Street analysts’ bullish price target from $110 in September 2018 to $90 in January 2019. Analysts also lowered their median price target from $69.5 to $47 during the same period. However, some analysts are upgrading the stock as they expect the downturn to end in the second half of 2019.
According to a CNBC article dated January 7, BMO Capital Markets analyst Ambrish Srivastava upgraded Micron from “market perform” to “outperform” and raised its price target from $32 to $50, representing an upside of 47% from its current trading price. He believes that Micron’s earnings will fall further before rising, but the stock has bottomed out and is now set for growth.
Ambrish Srivastava finds Micron’s current valuation attractive. He stated that the company has improved its cost structure by $2 billion from its last peak and reduced its margin gaps with larger rivals from nine percentage points to about six points. This improved structure will help the company generate free cash flow even in difficult circumstances.
Bernstein analyst Mark Newman reiterated Ambrish Srivastava’s comments and upgraded Micron from “market perform” to “outperform.” According to StreetInsider.com, Mark Newman estimates Micron has a potential to fall another 20% when the industry downturn is at its worst, like the 2016 and 2011 downturn. However, he believes that the current downturn will be short and the industry will stabilize in the second half of 2019 and recover in 2020.
Mark Newman added that Micron’s risk/reward ratio will be high when the industry recovers given the company’s improved cost competitiveness. In the earlier parts of the series, we saw the company’s profits rose several folds in the two-year memory uptrend when it was improving its cost competitiveness. Now, the company already has the cost competitiveness. The next memory uptrend is slated to accelerate Micron’s earnings faster than the previous uptrend.
Next, we’ll look at bearish analysts’ comments on Micron.
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