Micron Technology (NASDAQ:MU) delivered solid growth in FQ3-19 despite the well-known macro headwinds. Trade restrictions slowed demand while industry oversupply and price drops weighed on the industry as a whole. But Micron has a healthy balance sheet and improved profitability that could get the stock at $40 and holding that level.
Micron cut its capex and production forecast to align the supply-demand equilibrium. In the quarter, it enjoyed a 2000 basis point EBITDA margin improvement relative to peers since FY2016. Looking ahead, cost declines in DRAM and NAND will drive profit sustainability.
The company addressed the Huawei ban and said it suspended shipments. But in the past weekend at the G20 summit, the U.S. reversed its ban on Huawei. This will immediately benefit Micron as sales to the Chinese firm resume. Still, assuming no sales to Huawei, Micron forecast DRAM growth in the mid-teens for the calendar year. Management forecast NAND demand growth in the mid-30s% and supply growth in the high 30s.
Micron stock added 16% in the last week, breaking out of the $34 range, following the 39% revenue decline to $4.8 billion in Q3. But capex cuts and idling in DRAM and NAND wafer starts will lower costs. At a P/E of below five times and a forward P/E of around 14 times, Micron’s uptrend is only beginning.
