Investor Disappointment: Much Of Micron's Improvement Comes From Accounting Changes

Deutsche Bank is not fully convinced on Micron Technology, Inc. (NASDAQ: MU)'s earnings beat since changes in accounting contributed to the improvement. Furthermore, its guidance for the first quarter has the potential to create confusion since it won't come from either pricing or margins, which is the normal case.

Analysts Sidney Ho and Ross Seymore would have liked a robust like-for-like forecast. They believe both DRAM and NAND are seeing better market conditions, which helps Micron with fresh products in addition to the potentials it provides to expand margin. They also think DRAM supply growth could be limited in 2017 on disciplined CAPEX.

Therefore, the firm reiterated its Buy rating and target price of $20 on the company's stock, implying about 10 percent upside potentials from the current levels.

Related Link: Morgan Stanley Calls Micron Technology's Q4 A "Modest Setback"

Deutsche Bank pointed out that although the first-quarter revenue forecast is above Street estimates, its like-for-like EPS missed expectations. The firm indicated that about 3 percentage points of estimated adjusted gross margin forecast of 4–4.5 percentage points would come from the exclusion of stock-based comp and depreciation methodology.

"Despite a relative muted guide, we expect MU to see margin improvements in 1H17 as 20nm DRAM and 3D NAND ramp. We raise our EPS estimates (albeit not like-for-like) for F1Q17 from $0.09 to $0.17, F2Q17 from $0.12 to $0.25 and CY17 from $1.00 to $1.20," analysts told in their research note.

At last check, Micron was up 0.84 percent at $17.95.

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