Micron Technology (MU) Downgraded to Sell at Lynx Equity Strategies, PT $100

June 17, 2021 8:47 AM EDT
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Price: $75.94 +0.54%

Rating Summary:
    36 Buy, 11 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 18 | Down: 12 | New: 23
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Lynx Equity Strategies analysts KC Rajkumar and Jahanara Nissar lowered their vidw on Micron Technology (NASDAQ: MU) to Sell and cut their price target to $100.

  • We started worrying about the longevity of the memory cycle a month ago. In a note in mid-May (link below) we said Apple was likely trimming contracts for mobile memory, which seemed odd given the enthusiastic commentary by MU management at the earnings call late March.
  • Due to the gathering pace of negatives since then, primarily in smartphones, we are having to lower our view on MU. We are lowering our NTM price target from $110 to $100 vs. Street PTs in the deep triple-digit territory. This is based on our below-consensus Fy22 Eps of $11.25 and a 9x multiple.
  • We believe the nascent memory cycle stands in danger of running out of steam a couple of quarters earlier than we had envisaged. We now believe MU could see revenue sequentially down as early as Feb-2022, and gross margin plateauing out in the high 40s% vs. consensus in the 50s.
  • Our key reason for lower outlook for DRAM is the petering out of excess demand for mobile memory. Our checks into the supply chain show that whereas a quarter ago smartphone vendors feared shortages could develop later in the year, those fears appear to now have evaporated. The weakness in China and India, taken together ~40% of global units, likely knocks down global smartphone unit sales growth to low single digit vs. consensus ~7%.
  • We believe the Street is dismissing smartphone weakness in India (12% of global units) as a temporary blip. We think weakness could last more than just one quarter. We are learning that India weakness, resulting in inventory pile-up and elongated cash conversion cycle, is spilling over into China as the same smartphone vendors dominate both countries.
  • We do not expect demand for server dram alone to drive up margins, as this demand has been anticipated by memory suppliers. Also, Samsung said last month its intention to re-allocate capacity for mobile DRAM to server DRAM, thereby increasing bit supply and dampening prices.
  • The easing s/d imbalance in memory, we think is similar to the trend seen in recent weeks at other global commodities, and for the same reasons – hoarding of inventory by downstream players and fluctuations in end demand outlook.

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