Cowen Remains Positive on Micron (MU), But Enthusiasm Tempered Amid Headwinds
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Cowen and Company affirms Micron (Nasdaq: MU) with an Outperform rating and $19 price target following Q4 results and outlook issued Tuesday night.
Analyst Tim Arcuri commented today,
Troubling as the guidance was, a positive bias still seems warranted as DRAM supply/demand remains the first order driver for MU and industry capex is still being heavily diverted to 3D NAND. Our enthusiasm, though, is tempered by several headwinds to EPS power and margin trajectory (see below). Net/net, $19 still seems like the right target - interesting on a pullback, but hardly our top idea.
Arcuri noted the following headwinds for Micron going forward:
- OpEx is higher than expected and, while likely to come down through F2017, is still far above F2014/2015 levels despite what is still going to be lower revenue;
- cost reduction targets are no better than previously stated at Analyst Days despite a depreciation change that should be reducing cost/bit and adding a few 100bps to GMs, all things equal; and
- depreciation - even before adding in Inotera, which requires investment - is likely about to hockey stick higher as capex related to the Elpida/Rexchip assets falls all to depreciation due to the purchase accounting.
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