Micron Investors Will Be Surprised By 'EPS Power' Over Next 6-12 Months, Jefferies Says

In a report published Thursday, Jefferies analyst Sundeep Bajikar maintained a Buy rating on

, with a price target of $40, saying that DRAM stabilization may be witnessed in the back half of the year. EPS estimates may be cut in the near term, primarily due to weaker-than-expected PC demand. "However, our checks in Korea suggest investors are likely to find incremental evidence of rational supply-side behavior in 2H15, reinforcing our secular investment thesis driven by Moore Stress and industry consolidation," analyst Sundeep Bajikar said. Bajikar expects the "resilience of Micron's EPS power" to leave investors positively surprised over the upcoming 6-to-12 months. Industry experts in Korea are now modeling a decline of about 7 percent in PC shipments in CY15, down from the prior estimate of a 3-to-5 percent decline. This is a "good chance" of under-supply in the back half of the year, in view of the "DRAM output from factories on the supply side." Potentially hidden DRAM inventories pose a risk to this assessment, Bajikar wrote, while adding, "However, we think potential PC semiconductor inventory restocking with the launch of Win10 and Intel Skylake would at least partially offset such risk." In the report Jefferies noted, "Our checks suggest DRAM ASP decline YTD is approaching the limits of Samsung's cost reduction this year (~15-to-20% at most). Accordingly, we expect further downside to blended DRAM ASPs to be limited, with Samsung increasing its focus on maintaining its operating margins."