Cowen Cuts PT on Micron (MU) to $13; Says 'Huge' Upside Catalyst Hard to See at This Point
Cowen and Company trims its price target on Outperform-rated Micron (Nasdaq: MU) from $20 down to $13 following Q2 results and guidance issued Wednesday night.
Analyst Tim Arcuri summarized his thoughts:
Headline EPS guide of (~$0.09) mid-pt was worse than published Street, but certainly no worse than buy-side expectations and in line w/our ($0.10) downside scenario. That said, there are issues that worry us under the sheets. May was supposed to be the Q where we began to see the big 20nm-related cost-downs in DRAM – and it is (we estimate cost/bit likely down ~10% Q/Q). The problem is that ASP declines are still more than offsetting these declines, MU is building inventory, and the window for big cost declines in DRAM is fairly limited as 1x is going to start to become a slight headwind in FQ1:17 (Nov) and F2:17 (Feb). There is likely at least one more good cost-down DRAM Q from 20nm in FQ4 (Aug), but the inventory build threatens any material recovery in ASP.
In NAND, MU continues to pay upfront costs for 3D, but should finally see some leverage in C2H:15. Overall, the question continues to be GM – and while it is hard to see it getting much if any worse from these levels, it is harder after this call to make the case for any material recovery for at least a few Qs given these factors.
Because the stock is highly correlated to GMs, it is hard to see a huge upside catalyst. We now model ($0.28) EPS for C2016 (Street $0.36 pre-call) and $0.54 in C2017 (Street $1.30 pre-call), and it is frustrating to keep cutting numbers. MU should burn ~$1.7B FCF in C2016 – a huge number for sure – but we see FCF about neutral in C2017.
Overall we are throwing in the towel somewhat on our target with the realization that a big move back to $20 seems off the table for now. Even so, the stock is trading at TBV and unless EPS materially worsens from here – which we just don’t see – the directional bias seems to be flat or up for the stock even if MU continues to lose money for another several Qs,
Arcuri concluded.
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