Susquehanna Downgrades Micron Technology (MU) to Neutral

Susquehanna downgraded Micron Technology (NASDAQ: MU) from Positive to Neutral with a price target of $10.00 (from $15.00).

Analyst Mehdi Hosseini cited the confluence of a softer DRAM environment and debt servicing impact of Inotera, which could strain the balance sheet even further.

"While we ultimately believe margins are in a bottoming phase (which has been a key aspect of our reluctance to capitulate to Neutral), we believe the confluence of softer DRAM and uncertain NAND trends coming off our Korea/Taiwan trip, along with an untimely debt raise associated with Inotera, has escalated the risks to our long view, and thus has led to our reduction in EPS estimates and downgrade to Neutral," the analyst said.

The following key drivers underpin the downgrade: 1) our checks from Korea and Taiwan suggest a downtick in DRAM industry bit demand and a softening of ASP assumptions, 2) NAND demand appears to be healthy, but ASP pressure persists, 3) additional debt is needed for Inotera, weighing on the balance sheet and adding debt service costs to the P&L, and 4) in fact, Inotera synergies remain undefined, with "die penalty" associated with mobile and server DRAMs offsetting the cost synergies from consolidating Inotera (into MU P&L) - and thus preventing meaningful GM expansion.

The firm is lowering FY16/FY17 EPS to $0.11/$0.48 from $0.33/$1.49.

For an analyst ratings summary and ratings history on Micron Technology click here. For more ratings news on Micron Technology click here.

Shares of Micron Technology closed at $10.87 yesterday.

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