Wall Street Mixed on Micron (MU) after Q4, Better NAND Offset by Weak DRAM

September 28, 2012 12:08 PM EDT Send to a Friend
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Price: $31.06 +0.55%

Rating Summary:
    24 Buy, 9 Hold, 3 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 24 | Down: 28 | New: 14
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Micron Technology Inc. (NYSE: MU) is up about 1 percent mid-day Friday despite seemingly weak fourth quarter results after the close. Comments about better NAND gave bulls fodder. Meanwhile, bears pointed to the continued hell seen in PC DRAM.

Jefferies - CQ3 results missed Street expectations, and we lowered our estimates, but we like the risk/reward on MU for 3 reasons: 1) NAND ASPs are increasing, and MU is growing SSD revs, 2) PC-driven DRAM weakness is baked in but potential Ultrabook+Win8-driven sentiment inflection is not, and 3) we expect Elpida deal closing to be viewed positively. At EV/S of ~0.8x, we see low downside risk. Maintains Buy, trims price target from $11 to $10.

Nomura - "NAND exceeded our expectation as pricing strengthened during the quarter, while DRAM was worse driven primarily by PC DRAM. NAND sales declined 12% QoQ but were better than our forecast of down 18%. Micron executed well on its specialty DRAM and SSD businesses, but PC DRAM (~15% of total sales) is such a burden that we don't see the company turning profitable before summer next year. We continue to stay on the sideline until we see a clear path to profitability. The outlook for Nov-12 is worse than we expected. We believe the earliest that the company can turn profitable is in the Aug-13 quarter." Maintains Neutral, $8 target

MKM Partners - "As expected, better NAND offset ongoing DRAM weakness. Management commentary around FY13 demand (both NAND and DRAM) was uninspiring, but, in reality, this has become a play on industry consolidation/capex avoidance with the pending Elpida acquisition. Our analysis continues to suggest that consensus is too negative on the deal, which will likely be accretive to cash flow and book value and drive higher EPS in the first year after completion." Maintains Buy, $11 target

Goldman Sachs - "Although continued oversupply in the DRAM industry is negatively impacting Micron's profitability, management highlighted several key data points that signal continued improvement in NAND" They would buy SanDisk (NASDAQ: SNDK). Not Rated

RBC Capital - "While the numbers were disappointing, investors should recognize that until Elpida acquisition is complete (expected in 1HCY13) MU is a book value and/or restructuring play. In FQ4, BV/share only declined 1.4% Q/Q (excluding non-controlling interest) to $7.60. Elpida remains the single most important variable (catalyst) to our call, as we believe the potential acquisition would result in a BV increase and return to profitability over-time." Maintains Outperform, $10 price target.

Drexel Hamilton - "DRAM pricing remains soft owing to sluggish PC demand, conversion of notebooks to NAND SSD and tardy next generation Windows software... A pending effort to absorb Japan’s Elpida DRAM operations is thought to prove accretive and if it goes forward could benefit mid-FY2013 financials." Maintain Hold, $7 price target.

Deutsche Bank - "Although the company retains ample liquidity we believe the deterioration of the balance sheet is cause for concern. Debt/Equity ratio is approaching 50% and acquisitions may increase the debt burden further. F2013 Depreciation is largely offset by capex ($1.6-1.9bn) and it is unclear when MU can generate meaningful EPS and FCF" Maintain Hold, $7 price target.

Wells Fargo - "Micron's August quarter results reflected weak sales but good performance on many other parameters. Micron's 10% sales decline indicates a business environment far weaker than normal seasonality. The DRAM and NAND declines were driven primarily by volume, not pricing, suggesting that the supply chain probably held back memory purchases and, we suspect, avoided building excess inventory. Cash and equivalents grew sequentially, internal inventory fell slightly, and Micron was able to hold gross margin constant sequentially despite a significant sales decline. Maintains Outperform, and lowers valuation range from $10-$12 to $8-$9.50.

Wedbush: "We think with all the near-term bad news now out on the table for DRAM, favorable seasonal trends for NAND, and a better supply/demand environment ahead for DRAM driven by industry supply cuts and consolidation that a potential pull back in the stock today would likely be the last leg down. We view risk/reward on MU as compelling and recommend investors with a long-term horizon take advantage of any weakness to buy shares." Maintains Outperform, $8 price target.


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