MorningStar Cuts Fair Value Estimate to $23 from $25 on Micron Technology, Inc.(NASDAQ:MU)

Equity Analyst Abhinav Davuluri of Investment Research Firm MorningStar issued a research report called ”2015 Headwins Expected to Persist in 2016 for Micron Technology, Inc.(NASDAQ:MU); Cutting Fair Value Estimate to $23

According to the report ”Micron reported fiscal fourth-quarter results that were in line with our expectations. PC-related DRAM once again served as a drag on gross margin; however, management stressed that non-PC market DRAM (mobile, server, etc.) demand was relatively healthy. While DRAM still dominates as a percentage of shares, we believe the firm is headed in the right direction toward a more favorable product mix that will ultimately feature more 3D NAND.

Micron Technology, Inc.(NASDAQ:MU) is a global leader in advanced semiconductor systems. Micron’s broad portfolio of high-performance memory technologies-including DRAM, NAND and NOR Flash-is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron’s memory solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications. Micron’s common stock is traded on the NASDAQ under the MU symbol.

Equity Analyst Abhinav Davuluri continued ”Shares rose almost 8% in after-hours trading, as Micron expects industry supply and demand to stabilize in 2016 after a rough 2015 due to DRAM oversupply. Conversely, we don’t think this stabilization will be substantial until the back half of 2016, and coupled with weak guidance for next quarter, we are cutting our fair value estimate to $23 from $25 per share. While shares still trade at a discount to our updated fair value and could be appealing to some long-term investors, we reiterate our very high uncertainty rating for this no-moat company.

Fourth-quarter revenue was $3.6 billion, sequentially down for the third straight quarter. Although the compute/ networking business unit was expectedly down (14% from last quarter), the mobile business unit was up about 2%.

The latter has benefited from increasing memory content in memory, whereas the former suffering from a 7% decline in DRAM average selling price. We were disappointed in the continued tumble of Micron’s gross margin, down 400 basis points sequentially to 27%.

Fiscal 2015 revenue was roughly flat from the previous year, and we expect similar DRAM-related headwinds to persist through 2016. Granted, the volatility of the memory industry will remain a major risk, but we think Micron is wellpositioned in the long term through its 3D NAND and 3D XPoint pipelines.

On October 1 MU announced results of operations for its fourth quarter and 2015 fiscal year, which ended September 3, 2015. Revenues for the fourth quarter of fiscal 2015 were $3.60 billion and were 7 percent lower compared to the third quarter of fiscal 2015 and 15 percent lower compared to the fourth quarter of fiscal 2014. Revenues for fiscal year 2015 were $16.19 billion and net income attributable to Micron shareholders was $2.90 billion, or $2.47 per diluted share. Cash flows from operations were $5.21 billion for fiscal year 2015.

“We are pleased to report Fiscal Year 2015 results that include revenue of $16.2 billion, $2.72 in non-GAAP earnings per share, and $2.3 billion in dilution management activities, including convert retirements and share repurchases,” stated D. Mark Durcan, Chief Executive Officer. “While fourth quarter results were impacted by continued weakness in the PC sector, we believe that memory industry fundamentals remain favorable over the long term.”


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