Micron Gets Outperform Rating From RBC Capital Markets

Micron Gets Outperform Rating From RBC Capital Markets
March 29, 2019


An equity research report published by RBC Capital Markets has recommended investing in Micron Technology (Nasdaq: MU) shares on the basis of possible bottoming out of memory chip prices in the upcoming months. Notably, the stock has gained nearly 25% this year on expectations of a revival in chip prices in the second half of the year. The stock closed at $39.34, up $0.11 or 0.28% from prior close.


Despite poor 2Q results, analysts recommend Micron

Yesterday, Mitch Steves, an analyst at RBC Capital Markets started covering Micron stock with an outperform rating, assuming higher pricing of memory chips in the second half of 2019. Steves justified his argument by highlighting the demand for memory chips in data centers. The analyst anticipates an improvement in the overall memory market by the fourth quarter of 2019.

In a note to clients, Steves says: “While demand dynamics are challenging, the memory space historically rallies on ‘the last cut. We believe prices are continuing to come down and we will likely see a bottoming around the [second quarter/third quarter] time frame.”

He further wrote, “Our investment thesis on MU is predicated not on there being no more cycles but rather on our belief that the cycle(s) going forward will be more muted and less volatile.”

Based on the facts mentioned above, Steves gave $50 as the price target for Micron stock. The price target reflects a premium of about 25% from yesterday’s closing price.

Micron is an industry leader in the market of semiconductor memory chips, which includes DRAM and NAND. While DRAM refers to dynamic random access memory chips that are used on desktop and server computers, NAND refers to flash memory chips that are used on smartphones on solid state hard drives.

The stock appreciated by roughly 10% last week despite reporting weak performance in the second quarter.  While earnings per share declined 39.4% on a y-o-y basis, revenue plunged 20.5% y-o-y, but was better than what investors and speculators were expecting for the quarter. As a result, investors breathed a sigh of relief that led to a rally in the stock’s price. By the end of 2018, the stock of Micron had lost 50% of its peak value achieved earlier in the year. However, the anticipation of a reversal in the memory chip market enabled the stock to gain roughly 40% so far this year.

Sidney Ho, an analyst at Deutsche Bank, anticipates the uptrend to continue. He maintains a “buy” rating for the stock with a price target of $48, implying an appreciation of roughly 20% from yesterday’s close.

In his note to clients, Ho has appreciated Micron’s confidence in seeing a chip price recovery in the second half of 2019.

Ho says, “technology transitions in both DRAM and NAND appear to be on track, and the company reiterated that it expects to see healthy cost declines in CY19.”

Memory chips usually follow a cycle. The last one collapsed due to high inventory levels in the industry. Ho has pointed out that “inventory ended the quarter at $4.4b or 134 days, up ~$500m or 27 days q/ q, and the company expects inventory to move higher in F3Q.”

Even though the inventory levels are increasing, Ho believes that “memory suppliers are demonstrating more discipline in this cycle.” The analyst expects the discipline shown by the manufacturers to improve the overall supply chain scenario.

Ho finishes by saying: “it is difficult to have too much conviction that the current quarter will be the trough of this cycle, although we believe it is unlikely to see significant downward revisions from the current level.”

The company is yet to recover from the problems it faces, but analysts believe that it is taking the right steps to resolve the situation.

Out of the 27 analysts who cover the stock, 25 analysts have given a ‘Moderate Buy’ rating, 16 analysts have issued a ‘Buy’ rating, and only two have given a ‘Sell’ rating. The average price target of analysts is $46.75. Therefore, the stock is expected to remain range-bound with bullish bias in the short-term.

Technically, the stock has found support at 30. The next major resistance is expected at 56 levels. The Chaikin money flow indicator also has a positive reading. As a result, we can expect the stock to move up in the short-term.

mu - technical analysis -29th March 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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