Micron's Improved DRAM Market Isn't Translating Into Enough Upside

Micron Technology, Inc. MU reported Q4 results in-line with the positive preannouncement. While DRAM market conditions may remain strong in the coming quarters, the company’s “ability to translate improved industry prices into better EPS and positive FCF continues to trail peers,” Goldman Sachs’ Mark Delaney said in a report.

Delaney maintained a Neutral rating on Micron, while reducing the price target from $18 to $16.

The company reported its August quarter results with non-GAAP EPS of $(0.05). DRAM sales grew 13 percent quarter-over-quarter, while NAND sales were up 12 percent.

Micron guided to FQ1 sales of $3.55-$3.85 billion, representing 10-20 percent sequential growth. This was 4 percent higher than the Street expectations. The company projected its non-GAAP EPS at $0.13-$0.21.

Related Link: Micron's Good Quarter Muted By Weak November Guidance

Delaney pointed out, however, that EPS has been calculated with a changed methodology that resulted in a benefit of ~$150 million, excluding which the EPS guidance would have been significantly below investor expectations.

The EPS estimates for FY 2017 and FY 2018 have been reduced from $0.90 to $0.80 and from $1.30 to $1.10, respectively, reflecting lower margins.

“While we believe DRAM market conditions could remain solid in the coming quarters, allowing Micron to achieve EPS near the higher-end of its guidance for 1QFY17, its ability to translate improved industry prices into better EPS and positive FCF continues to trail peers,” Peck wrote. He added that NAND oversupply would likely continue in 2017.
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