Micron Profits: Demand for memory chips has pushed stocks to the highest prices since the dot-com boom

Micron Technology Inc. is expected to release a profit report compared to a quarter ago, as prices and demand for memory chips have slowed down.

Micron UM,
-2.67%
is expected to release its first quarter results after the bell on Thursday, following a disappointing forecast in its latest earnings report. Micron was gripped by worries at the time, having lost around 10% of its revenue to a U.S. ban on selling to Chinese telecommunications equipment company Huawei and what it saw as a slowdown in sales. mobile phone, automotive and consumer markets due to COVID-19.

The tide turned in December, when the Boise, Idaho-based chipmaker dramatically increased its outlook As prices and demand for memory chips improved and, as Evercore ISI analyst CJ Muse said, “DRAM fundamentals have continued to improve since then. “

Micron specializes in DRAM and NAND memory chips. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, while NAND chips are the flash memory chips used in USB drives and smaller devices, such as digital cameras. .

Analysts paved the way for a turnaround with ratings and price hikes, and the stock price surged in response, closing Tuesday at its highest price since the dot-com boom after a double upgrade. level. Citi Research analyst Christopher Danley did a full 180 and upgraded Micron to a buy from a sell and increased his price target to $ 100 from $ 35 on the biggest favorable DRAM supply / demand imbalance since 2017.

“While the stock has appreciated 40% over the past two months and is trading at a higher valuation than at any time during the previous rally, we believe there is still a lot of potential as DRAM hikes typically last two years and supply / demand looks favorable for at least next year, ”Danley wrote in a note Tuesday morning.

What to expect

Earnings: Of the 30 analysts surveyed by FactSet, Micron is expected to average adjusted earnings of 71 cents per share, down from the 75 cents per share expected at the start of the quarter. Micron plans 69 cents to 73 cents per share back in december, dropping from the 40 cents to 54 cents per share that the company expected in his last results report. Estimize, a software platform that uses crowdsourcing from executives of hedge funds, brokerage houses, buy-side analysts and others, forecasts a profit of 78 cents a share.

Returned: Wall Street expects Micron’s $ 5.69 billion in revenue, according to 29 analysts polled by FactSet. This is up from the $ 5.49 billion forecast at the start of the quarter. Micron forecasted sales of $ 5.7 billion to $ 5.75 billion in December, down from $ 5 to $ 5.4 billion in September. Estimize projects sales of $ 5.77 billion.

Movement of stock: In the last quarter, Micron stock rose 38%, compared to a 19% increase in the PHLX Semiconductor SOX index,
+ 0.00%
over the same period, as well as a 5% increase in the S&P 500 SPX index,
+1.42%
and a 6.5% gain in the Nasdaq Composite Index COMP,
+ 0.83%.

What analysts say

Morgan Stanley analyst Joseph Moore raised his overweight rating and raised his price target to $ 88 from $ 80 on Monday.

“The February quarter prices for DRAM are exceeding our previous expectations, and while NAND prices are lower, they are not as bad as our estimates,” said Moore. “We were surprised at how quickly prices stabilized, but we were even more impressed with Micron’s profitable performance under difficult conditions. “

Evercore’s Muse, which has an outperformance rating and a price target of $ 90, said he sees “Super Cycle DRAM” emerge in 2021 and 2022 as demanded by Apple Inc. AAPL,
-0.61%
and Samsung Electronics Co. 005930,
-0.26%
compensates for loss of income Huawei.

Muse noted that Micron “said it was on track to meet its no-impact goal by the end of FQ2 and we note that the strength of the iPhone Pro (with 6GB of DRAM vs. 4 GB typical) is probably a positive driver here, too. “

“We also believe this should be bolstered by continued strong demand for PCs and graphics ([Nvidia Corp.
NVDA,
+2.20%
] product) as well as the start of an automotive / industrial recovery, with a healthy cloud and a business that remains weak. ”

Of the 35 analysts who cover Micron, 29 have buy or overweight ratings, five have keep ratings and one has sell ratings, with an average price target of $ 84.83.

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