In contrast to many names in the semiconductor sector, chip giant Micron (MU) has had a difficult 2020. Hampered by reduced enterprise demand, lower IT outlays and adverse macro conditions, including the US ban on key customer Huawei, the stock had failed to ignite for most of the year.
But change is in the air. Over the past month, shares have been on the move, and in the right direction. So far, in November, Micron stock has added 21% of muscle, moving its yearly performance firmly into the green.
Following a conversation with Micron management, Raymond James analyst Chris Caso believes the long-term outlook for Micron remains favorable.
“While the company didn’t change the view expressed in its September earnings call,” the 5-star analyst said, “Management continued to express optimism for a DRAM market recovery through 2021, which we expect would benefit Micron’s revenue, margins and free cash flow.”
In the company’s latest earnings call (F4Q20), Micron management prepared investors for a difficult quarter (F1Q21). The company guided for revenue of $5.2 billion, indicating a 14% quarter-over-quarter decline. Although when taking out the extra week in F4Q, the sequential decline “is a more moderate 5%.” Micron also anticipates “more of the same for F2Q.”
However, looking further ahead, Micron is making some positive noises, with the company “highly confident in DRAM improvement in 2021,”
The renewed optimism is based on “moderate industry capex, strong secular bit growth drivers, and improving cost.”
While uncertainty remains concerning the recovery of consumer spending in 2021, 2H outlook is “more dependent on strong secular drivers and content gains in 5G handsets, cloud, and graphics.”
On NAND, however, Micron is not quite as confident, citing “aggression on the part of competitors,” behind its cautious outlook. Still, Caso notes NAND only makes up a quarter of Micron’s revenue and says, “cost will improve in 2021 as second-generation replacement gate / 176 layer NAND ramps.”
All in all, Caso reiterated a Strong Buy rating on Micron shares along with a $65 price target. (To watch Caso’s track record, click here)
There are plenty of Buy ratings for Micron amongst Caso’s colleagues – 17, in fact. With the addition of 5 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. However, following November’s gains, the $61.65 average price target suggests shares will remain range bound for the foreseeable future. (See Micron stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.