Deutsche Bank, Credit Suisse Still Buying Micron Despite Lower PC Demand/Pricing

Last Friday, DRAM Exchange released PC contract pricing for the second half of July. After falling 8 percent in April, 5 percent in May and 2 percent in June, July pricing dropped about 15 percent month-over-month.

In a report issued Monday, Credit Suisse analyst John Pitzer and his team noted that, while July contract pricing “is just catching up to spot and is not wholly unexpected, it is the worst m/m decline since Oct-2011.”

Consequently, they lowered their EPS estimates for the third and fourth quarter of the year from $0.35 to $0.28 and from $0.43 to $0.20, respectively. The Street, for its part, is anticipating EPS of $0.38 for the third quarter and EPS of $0.55 for the fourth quarter.

Related Link: How To Trade Micron And China's Semiconductor Plan

Despite the facts that all three DRAM suppliers missed supply growth estimates for the second quarter and SAMSUNG ELECT LTD(F) (OTC: SSNLF) lowered its full-year Industry DRAM bit growth from 25 percent to 20–25 percent, “continued weak PC demand is outpacing benign supply,” the report explained.

Seasonally, pricing tends to improve – or at least stabilize – between August and October, “in line with stronger PC builds – but given weak 1H PC demand, and Win10 RTM, July trends are not encouraging. Overnight, local press is reporting that Samsung is shifting 30 percent of its PC capacity, and informing PC OEMs they will hold 4GB PC DRAM module pricing at $21 (flat from current  prices) – which if true should help the bottoming process,” the experts added.

Micron Technology, Inc. (NASDAQ: MU) is trading at 0.7 times replacement value and roughly 1.4 on the firm’s NTM EV/Sales versus trough pre-2011 of 1.2. The analysts assured that the next potential catalyst for the stock could come on August 14, when the company hosts its Annual Summer Analyst Day.

Despite this, Credit Suisse maintains an Outperform rating and $34.00 price target on the stock.

Related Link: Micron Has Breakthrough Potential Worth $33/Share, Says JMP's Alex Gauna

Another Bull

On Monday, Deutsche Bank also voiced its bullishness regarding Micron, reiterating a Buy rating and $28.00 price target on the stock. Nonetheless, ahead of the company’s analyst meeting scheduled for next week, analysts Sidney Ho and Ross Seymore trimmed their estimates to reflect reduced PC and smartphone demand and “slower cost improvement over the next couple of quarters.”

Having said this, the experts remain positive on the stock, on the belief that "a stabilization of the DRAM market and MU's solid 3D NAND ramp plans should support an annualized EPS of $3.00+ in 2H16." Moreover, trading at roughly 7.5 times the firm’s CY16E EPS estimate, the analysts think the risk-reward profile is favorable.

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