Reality Sets in as Analysts Bail on Micron

Argus has a Buy rating for Micron but lowered its price target to $32 from $41. The change in the price target is based on a weak fiscal third-quarter performance, as well as disappointing fourth-quarter guidance.

Considering the continued slack demand in the PC industry and product transitions for 20 nm DRAM, fiscal fourth-quarter sales and earnings likely will come in well below expectations. At the same time, the Windows 10 launch and new Intel Core M CPUs should invigorate the PC market in the calendar fourth quarter.

However, these transitions are proving more difficult than envisioned. Micron expects DRAM costs per bit to rise in the fiscal fourth quarter (ending August 2015), even as DRAM ASPS continue to sink.

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According to Argus:

In discussing the challenging results, Micron’s cited near-term headwinds that were primarily centered on the PC segment, amid “relative strength in other segments.” The compute and network business experienced a sales decline of 18% year over-year, leading to a 50% drop in Compute segment operating income. Excluding the computing business, Micron’s revenues were up 11% annually, led by strength in the mobility business; non-compute operating income was up 26%.

A few other firms recently issued ratings on Micron as well:

• Cowen has an Outperform rating for Micron and lowered its price target to $30 from $34.
• Topeka Capital Markets has a Buy rating for Micron and lowered its price target to $28 from $35.
• Stifel has a Buy rating for Micron and lowered its price target to $34 from $41.
• JPMorgan has an Overweight rating but cut its price target to $29 from $33.
• Credit Suisse noted that it was not supplier-weak PCs but weak execution, as the firm cut its price target to $34 from $50.

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Shares of Micron closed Friday down 18.2% on the day to $19.66, in a 52-week trading range of $19.43 to $36.59. In early trading indications Monday, shares were down 3% at $19.07. The stock has a consensus analyst price target of $31.27.