On Monday, Susquehanna upgraded both Micron and Western Digital
Shares of Micron Technology (MU) are in focus in morning trading after the stock received its second upgrade in two days. On Monday, Susquehanna upgraded shares to Positive, with the firm's analyst saying he believes February guidance should mark the bottom, while on Tuesday, Wedbush's analyst upgraded shares to Outperform, citing an improving memory dynamic.
Peer Western Digital (WDC) is also in focus after being upgraded at Susquehanna on Monday, with the firm saying it expects the 5G smartphone build cycle to "start in earnest" late in the March quarter.
TWO DAYS OF MICRON UPGRADES: On Monday, Susquehanna analyst Medhi Hosseini upgraded Micron to Positive from Neutral with a price target of $85, up from $45. While the analyst reduced his fiscal 2020 EPS estimate to account for a downtick in near-term average selling price trends, Hosseini said he believes February guidance should mark the bottom and sees higher odds for a sustainable average selling price improvement in both DRAM and NAND starting in the May quarter and sustaining into the second half of 2020. In light of this view, Hosseini raised his fiscal 2021 EPS estimate and now projects earnings power in the $8-$10 per share range for Micron. "Industry dynamics are improving with increased prospects of tightness and shortages by mid-2020," he wrote. "As such, we believe the worst-case [average selling price] and margin profile is now dialed into expectations, with increased prospects of a meaningful recovery in revenues in the latter part of 2020."
Micron received its second upgrade in two days from Wedbush analyst Matt Bryson, who raised his rating to Outperform from Neutral with a price target of $65, up from $44. In a research note of his own, Bryson said the upgrade was not a call on the quarter, as he doesn't expect meaningful upside to Q1 and expects the company's Q2 outlook to also be muted or in-line with the Street. Rather, Bryson said the upgrade was a reflection on improving memory dynamics. Specifically, Bryson said NAND pricing, SSDs in particular, should inflect upwards in Q1, saying "We are seeing the first signs of improving DRAM pricing as spot pricing is lifting and certain market participants expect contract pricing for server DRAM will improve in January -- a shift we attribute to better hyperscale demand." The analyst also said he believes, generally speaking, that periods of positive pricing change are the best periods to own memory stocks.
Micron is scheduled to report earnings on Wednesday, December 18.
WHAT'S NOTABLE: Also on Tuesday, several other analysts commented positively on Micron. Needham analyst Rajvindra Gill raised his price target to $70 and kept his Buy rating, saying he expects a Q2 bottom for NAND and DRAM pricing as well as a mid-cycle recovery in 2020. The analyst added that a "significant rebound" in memory pricing will be driven by multiple catalysts that include 5G smartphones, a rebound in hyperscaler spending, and normalized supply/demand. Gill also raised his FY21 EPS view on Micron to $1.58 from $1.15. Additionally, RBC Capital analyst Mitch Steves weighed in, cutting his FY20 EPS view to $3.02 from $3.48 but maintaining a positive stance on the stock on expectation that DRAM prices will improve. The analyst contended that earnings estimates on Micron will come down due to aggressive inventory de-stocking, but he believes that memory stocks will "work higher from here" with pricing now "past the bottom."
SUSQUEHANNA ALSO UPS WESTERN DIGITAL: On Monday, Susequehanna's Hosseini also upgraded Western Digital to Positive from Neutral with a price target of $90, up from $55. He told investors that he expects the 5G smartphone build cycle to "start in earnest" late in the March quarter and, combining this with cuts to NAND capital expenditures and wafer starts, should lead to a tight NAND supply/demand balance by the June quarter.
SEMICONDUCTOR COMMENTARY: Nomura Instinet analyst David Wong told investors on Tuesday that 2020 could be a year of recovery for semiconductors and semiconductor equipment. The analyst is projecting semiconductor industry sales growth of 8% and he thinks that wafer processing equipment sales could rise 11% in 2020.
Although semiconductor stocks have outperformed in 2019, further upside exists in 2020 as the industry growth rates inflect positively and drive the positive earnings revision cycle, JPMorgan analyst Harlan Sur said on Monday. The analyst highlighted Micron and others on their "strong datacenter exposure."
PRICE ACTION: In morning trading, shares of Micron are up nearly 0.5% to $53.15. Western Digital is also 1% higher to $57.09.