Last month, Micron’s (NASDAQ:MU) CEO said it expected a stronger second half for this year. A month later, markets all but forgot about that outlook and the stock’s run towards $45 ended. Why are analysts expecting weak memory and storage prices and downgrading Micron stock?
Micron’s CEO attended the Goldman Sachs technology conference and commented that DRAM end-market demand is healthy. The market benefits from more memory chips used in smartphone. Even if smartphone demand peaked, higher content per device will help Micron draw down its elevated inventory.
Micron will also lower output rates to deal with the over-supply.
More recently, Cleveland Research set a negative tone on Micron, which send the stock lower. Western Digital (NASDAQ:WDC) fell 8% last week in sympathy to the downgrade. If weak pricing in Q1 and Q2 hurts EPS, the inventory risks, weak demand, and lower revenue assumptions will limit the upside in holding Micron. Samsung is, and will always be, a competitive threat to the chip supplier.
Both WDC and MU stock trade at favorable forward P/ESs at 8 times and 6 times, respectively. By 2020, an equilibrium for DRAM and NAND will lead to EPS resuming growth. By then, the stock should be in an uptrend. Consider accumulating to the MU and WDC position throughout this year.
