Credit Suisse Sees 40% Upside In Micron Shares

With Micron Technology, Inc. (NASDAQ: MU) scheduled to report its Q2 results Thursday, Credit Suisse’s John Pitzer pointed out the company already provided a positive preannouncement on March 2.

The analyst maintained an Outperform rating on the company, while raising the price target from $30 to $35.

FQ2 Expectations

Pitzer expects Micron to report revenue and EPS for FQ2 of at least at $4.65 billion and $0.86, respectively, ahead of the original guidance but in line with the consensus.

“We expect MU to guide F3Q Rev/EPS to a range of $4.71-$5.01bn and $0.95-$1.05 modestly better than Street, modestly lower than Buy-side, but in-line with management’s conservative stance,” the analyst mentioned.

While ASPs (average selling prices) have continued to be positive, the upside during FQ2 and FQ3 is driven by improved costs-downs and margin expansion, Pitzer stated, while expecting gross margin of 37.5 percent for FQ2, representing a 1,150 bps quarter-on-quarter increase and above the original guidance.

The gross margins are expected to have been driven by higher than expected DRAM/NAND cost reductions.

Gross margins for FQ3 are expected at 40 percent, based on DRAM and NAND quarter on quarter cost reductions of 2 percent and 4 percent, respectively.

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Multiple Expansion

“Historically MU has been a levered play on memory, but a structural laggard in DRAM/NAND costs. We see F2Q margin upside as evidence MU is closing the cost gap,” Pitzer stated, while adding that closing the cost gap with Samsung was expected to drive multiple expansion for Micron."

“While pricing trends may begin to level off, even against our upside bit growth, we would expect MU margins to expand throughout the year,” the analyst added.