Micron Technology (MU) is Still a Sell at Needham Despite Increasing DRAM Prices

By Carrie Williams

micron-technology-inc-mu-still-a-sell-at-needham-despite-increasing-dram-pricesIn a research note released today, analyst Rajvindra Gill from Needham reiterated a Sell rating on the semiconductor company, Micron Technology Inc. (NASDAQ: MU).

After reporting Q4 beat with very poor numbers on October 4, the stock had reached its 52-week high of $20.44 last Friday. This rally was due to increase in dynamic random-access memory (DRAM) prices, decent 3D NAND and 3D XPoint sales, as well as promising fundamentals. However, the prices of MU has been sliding down during the past three trading sessions and opened today at $19.58.

Gill explained his reasoning for the Sell rating of MU in the report as follows.

“We maintain our Underperform given: 1) unfavorable risk/reward with peak multiples; 2) major levels of gross/net debt ($10B and $5B — you have to go back before 2007 to even approach this debt level); and 3) currently, not cost competitive in 3D NAND.”

Gill also believes that an aggressive pricing by a competitor like Samsung or SK Hynix could erode ASPs and have a negative impact on MU.

The semiconductor index is also heavily overbought currently, implying the possibility of a correction quite soon. This correction could negatively impact the highly volatile MU. The interest rates are also on a rise, which is yet another negative for the stock.

Meanwhile, the company is expecting to close its Inotera deal in December. The acquisition of DRAM chip manufacturer Inotera Memories Inc. is being done for $4.1 billion and is expected to bring in operational improvements. The deal is also expected to be immediately accretive to EPS, FCF, and GM. Micron had also raised its guidance prior to its 1Q17 results, citing the improved market conditions, predominantly the stabilization for the DRAM market as the main reason. The company now expects revenue of $3.975 billion, GM of 25.5%, and EPS of $0.28 for 1Q17.

Based on recent major shareholders activity of Micron, the company’s insider sentiment is negatives. Insiders seem to be selling their shares, and during the past month, CEO, Director, Dermot Mark Durcan sold shares of Micron Technology Inc. amounting to a total of $23,944, while VP of Worldwide Sale Steven Thorsen sold shares for a total of $1,107,540.

Yet, the overall analyst rating consensus on the stock is a Moderate Buy with an average analyst price target of $20.64, according to TipRanks.com. The PT represents an upside of 6.01% from the current levels.