Expectations are running high for Micron Technology Inc. earnings as the rising price of memory chips doesn’t show any signs of slowing and demand from data centers appears to be outpacing supply efforts.

Micron MU, -1.57% is scheduled to report fiscal second-quarter earnings late Thursday, and while analyst price hikes usually come after a company reports earnings, nearly a third of analysts who cover the company have raised their price targets in the days leading up to the report.

Analyst price hikes on Micron began trickling in two weeks ago and have not stopped, with nine analysts who cover Micron raising their target prices after a Goldman Sachs note that said memory chip supplies appear constrained and prices are expected to continue to rise. Also, in early February, Micron boosted its outlook and named a new financial chief, David Zinsner.

Don’t miss: Micron stock-option ‘straddles’ are preparing for a big move after earnings

Micron makes DRAM, or dynamic random access memory, chips, the type of memory commonly used in PCs and servers; and NAND chips, the flash memory chips that are used in USB drives and smaller devices such as digital cameras. Analysts, on average, expect DRAM revenue to increase 64% to $4.82 billion, and NAND revenue to rise 36% to $2.02 billion, according to FactSet.

What to expect

Earnings: Of the 25 analysts surveyed by FactSet, Micron on average is expected to post adjusted earnings of $2.71 a share, up from the $2.56 a share expected at the beginning of the quarter. Micron forecast $2.70 to $2.75 a share when raising its outlook in February. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of $2.83 a share.

Revenue: Wall Street expects revenue of $7.25 billion from Micron, according to 24 analysts polled by FactSet. That’s up from the $7.03 billion forecast at the beginning of the quarter. Micron predicted revenue of $7.2 billion to $7.35 billion in its update, and Estimize expects revenue of $7.34 billion.

Stock movement: Micron shares have been on a tear, rising 54% since the company boosted its outlook in early February and 134% in the past 12 months. In March alone, shares have rallied 25%. In comparison, the PHLX Semiconductor Index SOX, -1.29% is up 3% for the month, and 41% over the past 12 months, while the S&P 500 index SPX, -0.81% is down 0.1%% for the month and up 15% over the past 12 months.

What analysts are saying

Mostly, expect Micron to go higher. BMO Capital Market analyst Ambrish Srivastava, who has a market perform rating, raised his price target to $63 from $43 on Wednesday because of Micron’s raised guidance and the strong demand for DRAM. Instinet analyst Romit Shah hiked his price target on the stock to an ultra-bullish $100 from $55 earlier in the month, and said he expects DRAM pricing to keep climbing higher and expects Micron to start paying a dividend and announce share buybacks in May.

Mizuho Securities analyst Vijay Rakesh, who has a buy on Micron, hiked his price target on the stock, but not as dramatically — to $66 from $55. In a note, Rakesh said that with strong fundamentals, annual earnings approaching $10 to $20 a share and gross margins at a historical high of 56% to 57%, Micron “presents an attractive opportunity as one of the cheapest memory suppliers.”

Cowen analyst Karl Ackerman, who has an outperform rating and a $55 price target, said Micron may try to manage expectations little better going forward with a new CFO. He noted:

While demand data points remain strong and ASPs may hold up better than Street’s implicit expectations, this will also be the first quarter with the company’s new CFO, David Zinsner. Thus, there could be some propensity to “keep the bar low” as MU attempts to continue to build a strong track record of execution vis-a-vis guidance.

Susquehanna Financial analyst Mehdi Hosseini, who has a positive rating and raised his price target to $80 from $60, expects Micron to start acquiring other chip makers to deal with growing capacity. Hosseini notes:

With cloud becoming a bigger part of aggregate memory demand, and MU looking to capture a higher mix of economics, we see it as inevitable for Micron to move up the stack. We anticipate memory to be the fastest growth part of next-gen data center spending, and bits of memory cannot be virtualized. As such, we believe Micron needs M&A to beef-up its portfolio of IP/System know-how. Also, Micron is running out of clean room while competitors have announced new fabs.

Rajvindra Gill, who has a strong buy and a $76 price target, noted:

We believe DRAM pricing remains strong in F1Q18, and our confidence is high following a beat/raise quarter and subsequent increased guidance. Importantly we believe strength isn’t solely short term in nature, rather that a new memory paradigm is emerging, namely memory is expected to experience a heightened, sustained demand in diverse end markets (dampening previous cycles) as we transition to a data economy (AI, video rendering, higher data traffic, etc. to sustain growth).

Longbow Research analyst Mike Burton, who has a buy rating and a $60 target price, put into perspective how data centers and autonomous cars are changing the game for memory chips. He noted:

[G]oing forward, the demand picture for memory will be driven by applications outside of “normal” personal computers. These markets will be centered around data centers and autonomous cars. For the data center, 10 years ago PC DRAM demand was seven times bigger than server. Today, the demand for DRAM in servers is twice as big as PCs. For autonomous cars it is more of a longer-term trend that a fully autonomous car will likely require the same level of DRAM as a server.

Of the 31 analysts who cover Micron, 27 have buy or overweight ratings, three have hold ratings and one has a sell rating, with an average price target of $67.11, about 10% above where the stock was trading on Wednesday.

By: DocMemory
Copyright © 2023 CST, Inc. All Rights Reserved