Micron Technology (MU) FQ3 EPS Estimates Lowered at Deutsche Bank; Analyst Maintains Buy Rating

Deutsche Bank maintained a Buy rating on Micron Technology (NASDAQ: MU) with a price target of $40. FQ3 revenue/EPS was lowered to $4.29B/$0.73 (from $4.4B/$0.84). Estimates are lower on on near-term PC DRAM weakness, which appears priced in, said analyst Sidney Ho. EPS is expected to trough in May-period.

"While we lower our estimates to reflect near-term PC DRAM weakness, we expect pricing pressure to abate in 2H driven by seasonal PC build, higher mobile content and DDR4 upgrade cycle. In 2016, we see a number of positive catalysts, including mobile/server demand, 20nm DRAM transition, Inotera’s margin-sharing arrangement and tech improvements in NAND, driving EPS power of $4.00-$5.00. At the current level, the stock is attractively valued while awaiting for some of the catalysts to play out," said Ho.

"PC DRAM prices have fallen precipitously in the past few months. Our latest checks suggest that PC demand remains soft and DRAM prices will likely stay competitive in C2Q. We expect MU to report F2Q (Dec-Feb) ASP in line with guidance of “flat to down low single digits”, but comments on DRAM pricing in F3Q will likely be cautious given weak seasonal demand. That said, channel inventory appears to be back to normal levels of 3-5 weeks. Combined, we believe our previous ASP assumption of 4% q/q decline is too optimistic. Our new estimate of 7% q/q decline assumes ~10% decline for PC DRAM (~40% of DRAM business), ~5% decline for server and modest decline for mobile," continued the analyst.

"We are lowering our F3Q ests from $4.40bn/$0.84 to $4.29bn/$0.73, below cons of $4.43bn$0.86. We expect DRAM GM to decline ~250bps q/q to ~39% vs. our prior assumption of up 50bps due to weaker pricing and limited cost improvements from 25nm tech migration. While we also lowered our CY15E EPS from $3.70 to $3.40, we reduced our CY16E EPS only modestly to $4.20 from $4.30, as we see improved product mix, technology migration and Inotera supply arrangement all contribute and help offset price declines," Ho added.

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Shares of Micron Technology closed at $28.72 yesterday.

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