Micron (MU) Gains After Beat and Raise, 'Plenty of Upside Left' Says Analyst as Company Mulls $30B Kioxia Deal

April 1, 2021 7:39 AM EDT
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Price: $90.45 -0.23%

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    37 Buy, 10 Hold, 1 Sell

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Micron Technology (NASDAQ: MU) is up 4.3% in pre-open trading Thursday after the company delivered stronger-than-expected results for its second quarter to March 04.

Micron made a profit of $0.98 per share to beat the Street’s consensus of $0.95 a share. Revenue came in at $6.24 billion, again higher than the $6.21 billion expected from market analysts.

“Micron’s strong fiscal second quarter performance reflects rapidly improving market conditions and continued solid execution,” said Micron Technology President and CEO Sanjay Mehrotra.

“Our technology leadership in both DRAM and NAND places Micron in an excellent position to capitalize on the secular demand driven by AI and 5G, and to deliver new levels of user experience and innovation across the data center and intelligent edge.”

For the current quarter, MU is projecting earnings of $1.62 per share on sales of $7.1 billion, which is much better than Street’s expectations of EPS of $1.32 per share on revenue of $6.79 billion.

Susquehanna analyst Mehdi Hosseini says that MU delivered a good quarter but the investors’ focus is on the mid-term earnings power. The analyst believes there is still plenty of upside left to the share price as he moved the PT to $150.00 per share from $145.00.

“We argue our thesis is playing out as strengthening supply-demand and thus higher blended ASPs are lifting margins. Given the high fixed structure of the biz model, we think there is still 15-20 pts of OM expansion left that could drive annual earnings from the current ~ $4.00 to $15+ by YE22,” writes Hosseini.

Mizuho analyst Vijay Rakesh described the guidance as “solid” enough for him to raise the price target to $105.00 per share from the old $100.00.

“We see MU well positioned for a stronger 2021, with DRAM (71% of revenues) already in shortage heading into its seasonally stronger demand period; we also look for 5G handsets up >2x y/y, improving 2H data center, and benefits from buyback resumption and cost structure improvement,” Rakesh wrote in a note sent to clients after the earnings report was published.

Rakesh also stressed that last night’s WSJ article about the potential for NAND consolidation with Kioxia could be a significant positive for MU and Western Digital Corporation (WDC). The WSJ article noted both MU and WDC are each exploring a potential deal for Kioxia that would value the Japanese semiconductor company at around $30 billion.

If the deal can’t be reached, Kioxia would explore going public later this year. The Japanese chip giant canceled IPO plans last year amid the pandemic and high market volatility. Given the importance this company bears for Japan, its sale is likely to require approval from the Japanese government.

“We believe any consolidation would be a big positive for the Memory industry and specifically for the stability of the over-supplied NAND market, as it could drive significant pricing power and leverage, especially against a backdrop of looming shortages,” Rakesh commented on the Kioxia link.



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