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Rating upgrade breathes new life into Micron; stock rallies

Micron Technology (MU) got a big boost Wednesday after Bernstein Research upgraded the stock to outperform from market perform. The analyst sees an early rebound in the prices of memory chips, especially DRAM, after the unusually sharp correction witnessed in recent months, mainly due to cyclical factors. The brokerage firm also lowered its price target to $52 from $60.

According to the analyst, the microprocessor industry is all set to stabilize in the second half of the year. Consequently, the companies will see their profits recovering early next year. Micron’s stock moved up 7% during Wednesday’s regular session, continuing its recovery from last month’s one-year low.

With the trend-reversal signaling a sustained uptick in the coming weeks, the time is ripe to own the stock. Short-term investors can opt to sell before the current cycle comes to an end when the supply-demand gap turns negative again.

The analyst sees an early rebound in the prices of memory chips after the unusually sharp correction witnessed in recent months

It needs to be noted that Bernstein’s bullish call follows a similar upgrade by BMO Capital Markets earlier this week. The BMO analyst’s outlook for the stock turned positive due to the favorable valuation and the company’s relatively strong fundamentals. It also complements the general perception that the stock is set for a steady ascent after the free fall.

The Idaho-based company had an eventful start to 2019, clinching a couple of key partnerships for the development of innovative technologies for the auto industry. The tie-ups – with rival chipmakers Qualcomm (QCOM) and Intel (INTC) for automotive infotainment system and self-driving platform respectively, seem to be helping Micron stay resilient against the semiconductor rout.

Micron Q1 revenues miss amid faltering chip demand; earnings beat

Last month, analysts’ outlook turned less optimistic after Micron’s first-quarter revenues missed the Wall Street estimates, despite a 16% year-over-year increase, reflecting the weaker than expected demand for DRAM and NAND memory chips and lower prices. Adding to the downbeat mood and raising fears of a further margin squeeze, the management predicted that the downtrend will continue in the current quarter.

Over the past three months, Micron shares dropped about 20%, underperforming the S&P 500 index. However, the stock gained about 11% since the beginning of 2019. Wednesday’s rally had a ripple effect on other chip stocks like Intel Corp. and Advanced Micro Devices (AMD), which made notable gains in the afternoon.

 

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