Shares of Micron (MU) are on the rise after Goldman Sachs analyst Mark Delaney upgraded the stock to Buy as he is now more positive on global memory stocks and believes the excess inventory memory companies are carrying will be depleted faster than previous expectations. Citing valuation, the analyst downgraded Marvell Technology (MRVL) to Neutral.
MICRON TO BUY, MARVELL TO NEUTRAL: In a research note to investors, Goldman Sachs' Delaney upgraded Micron to Buy from Neutral and raised his price target on the shares to $56 from $40. The analyst said he is now more positive on global memory stocks as he believes that the excess inventory memory companies are carrying will be depleted faster than previous expectations, primarily in NAND flash. This is due to the Toshiba Memory Corporation (TOSBF, TOSYY) fab outage that has disrupted a mid-single digit percent of annual industry production, Delaney added.
Further, his most recent industry discussions suggest that NAND pricing could start to improve in the third quarter of 2019. This should be better understood by the market post the Flash Memory Summit in early August, he contended. Delaney also noted that NAND tool orders/shipments have fallen about 50% from the peak, and DRAM by about 40% from peach, which he views as positive sign for 2020 supply/demand.
Meanwhile, Delaney downgraded Marvell to Neutral from Buy, while raising his price target on the shares to $25 from $24. The analyst cited valuation, with the stock up 60% year-to-date, and pointed out that his positive view on the stock is now generally shared by investors. He now views Marvell's valuation as full.
POSITIVE ON SEMICONDUCTOR CAPITAL EQUIPMENT GROUP: In a research note of his own, Goldman Sachs analyst Toshiya Hari upgraded Applied Materials (AMAT) to Buy from Neutral, while adding the stock to the firm's Conviction List, Lam Research (LRCX) to Buy and KLA-Tencor (KLAC) to Neutral as he turns positive on the Semiconductor Capital group. While the analyst acknowledged that visibility is limited in the near-term, he believes disciplined supply-side actions from the memory manufacturers coupled with recent supply-side disruptions will drive an improvement in memory supply/demand sooner than previously expected and, ultimately, higher levels of Wafer Fab Equipment spending in 2020. Predicated on his improved outlook in memory as well as his view that competitive dynamics will keep logic/foundry spending elevated, Hari now forecasts the WFE market to grow 7% year over year in 2020, up from his prior assumption of flat year over year.
The analyst expects Applied Materials to benefit from the improved outlook given its leading WFE share position and exposure to memory as well as the company’s increased willingness to deploy capital. Regarding Lam Research, Hari noted that the company is "disproportionately exposed" to memory and is a share leader in etch and deposition - two product areas that have benefited from increasing capital intensity, particularly in NAND. Additionally, the analyst pointed out that while he continues to view KLA-Tencor as a relative underperformer within the context of the Semi Cap Equipment space, he believes the improving environment will drive earnings and the multiple.
MOVING TO THE SIDELINES ON KEYSIGHT: Goldman's Hari also downgraded Keysight Technologies (KEYS) to Neutral from Buy as the gap between his 2019/2020 earnings per share estimates and Street consensus shrunk to 3%/6%, the stock reached his price target of $86, and to make room for his constructive call on the Semiconductor Capital Equipment group. That said, the analyst acknowledged that his positive view on Keysight's near- to medium-term growth profile as well as its competitive position in the Test and Measurement space remains unchanged. He awaits signs of a re-acceleration in its business, potentially driven by growth in the breadth/depth of 5G use cases and the associated R&D spending, before potentially turning constructive on the stock again.
PRICE ACTION: In morning trading, shares of Micron have gained almost 3% to $46.62. Also higher, Applied Materials has jumped over 4% to $49.81, Lam Research has advanced almost 4% to $205.33 and KLA-Tencor has gained 2% to $134.44. Meanwhile, Marvell’s stock is fractionally down to $25.84, and Keysight has dropped nearly 1% to $86.78.