With the rise of smartphones, the over decade long growth and profitability of PC market hit a sudden roadblock. With rapidly changing environment of the technology industry diversification became the key to keep profits afloat for most PC component manufacturers. Not being able to diversify Micron Technology (NASDAQ:MU) is not faced with profitability concerns as the DRAM pricing continues to worsen by the day. The outlook doesn’t look favorable on NAND gates front either as the price pressure continues to mount and demand declines paired with continued oversupply doesn’t worsens the case.
Needham and Company analyst, Rajvindra Gill recently downgraded MU to an Underperform and reworked his estimates ahead of the earnings call for Q2 expected at the close of market on Wednesday. The market check done by the analyst doesn’t show any signs of positivity regarding DRAM pricing as the PC market remains slow. Mobile DRAM showed signs of vulnerabilities as well which adds to the grimace.
The analyst referred to the Street’s expectation of 12% yearly growth in revenue for the financial year 2017 as “overly optimistic”, given the fact that the FY2016 saw a 19% yearly decline in sales. The analyst saw no possible upside that could potentially propel the stock to Street’s $10 price target, either. The analyst revised his model to reflect the recent average sell price and expects a negative free cash flow between the ranges of $0.6 to $1.2 billion inclusive of Inotera impact. The analyst expects non-GAAP EPS of $0.30 and $0.75 for FY16 and 17 respectively and believes that 9x price to earnings ratio multiple would be a fair valuation.
The analyst opinion for MU has four strong Buy, 17 Buy, eight Hold, three Underperform and one Sell ratings. The stock is currently traded at $10.20 in the last hour of the premarket session falling from $10.38 at the close of market on Monday.