The Ratings Game: Micron stock enjoys best day in more than a year as ‘memory winter turns into spring’
Micron Technology Inc. shares shot to their best gain in more than a year Tuesday, after the memory-chip specialist provided a forecast for 2022 that offered more optimism than analysts expected.
Micron MU, +10.54% shares rose 10.5% in Tuesday trading, topping $90 for the first time since April, after executives delivered an earnings beat and strong forecast after the bell Monday. The stock enjoyed its best single-day percentage gain since April 6, 2020, when shares gained 12.5%, according to FactSet data.
At least 17 of the 36 analysts who track Micron increased their price targets in response to the earnings, according to FactSet, while cheering a bullish forecast from executives. Wedbush analyst Matt Bryson named his note “Memory winter turns into spring,” and noted that Micron executives’ forecast was a surprise given “typical conservatism” from the company’s management team.
“Micron surprised us and the Street by providing robust guidance that suggests both Micron and the memory market are nearing a very shallow cyclical trough rather than the harsh wintery downturn some had projected,” Bryson wrote, while increasing his price target to $100 from $85. “While we believe forward expectations for memory fundamentals have indeed improved through the course of the quarter discounting the likelihood of a longer cyclical decline, management surprised us by providing guidance that anticipates stabilizing conditions in light of their bias towards conservatism.”
Analysts and investors were trending toward Micron stock in recent months, with some high-profile upgrades lifting shares after a spring decline in response to management’s decision not to lean into the semiconductor supply crunch with a more radical increase in capital spending. There were concerns that a sudden change in the memory market could resemble 2018, when a spike in memory demand fell apart and led to Micron scuttling big plans to increase capacity, which could have come in handy as demand spiked in the past year.
Any fears that Micron will pull back on capital spending were put to rest with Monday’s report, analysts said.
“We believe management’s comments help alleviate bear concerns that the memory market is heading toward another downturn, which in turn, could stall capital spending plans,” Stifel analysts wrote, while maintaining a “strong buy” rating. “The company believes 2022 likely will see a ‘healthy supply-demand dynamic’ in both DRAM and NAND, which is consistent with our outlook (and if anything, we believe there could be a return to a supply imbalance versus a strong demand outlook).”
The Stifel analysts also pointed out that the report should be taken as good news for equipment providers that supply the memory-chip market. They particularly called out Lam Research Corp. LRCX, +3.33% and Axcelis Technologies Inc. ACLS, +3.93%, but also mentioned Applied Materials Inc. AMAT, +4.42%, KLA Corp. KLAC, +6.20%, Onto Innovation Inc. ONTO, +3.82% and Nova Ltd. NVMI, +4.34%.
The one concern among analysts was that the rapid rise in recent months had already counted on Micron’s optimistic outlook. The Wedbush analysts noted that a negative would be “recovery already being priced in” after the stock rose “roughly 30% from October lows without DRAM/NAND pricing yet having bottomed.”
Others were not concerned, however.
“With the stock at only 7x our FY23 EPS [estimate], we think there’s plenty of room left for the stock if they continue on that path to 2H22 improvement,” wrote Raymond James analysts, who maintained a “strong buy” rating and raised their price target to $115 from $100.
Out of 36 Micron analysts tracked by FactSet, 30 consider the stock the equivalent of a “buy,” with five “hold” ratings and just a single “sell.” After price targets were raised Tuesday morning, the average target reached $107.13, up from $96.28 as of the end of November, according to FactSet.
Micron shares have increased 20.6% so far this year, roughly in line with a 21.6% gain for the S&P 500 index SPX, +1.78%. Micron was the second-best performer in the S&P 500 on Tuesday, trailing only Citrix Systems Inc. CTXS, +13.63%.