Unsurprisingly, plenty of companies have found the going in 2020 tough. The pandemic and the damage wrought have sent some solid names into an extended period of struggle. However, in contrast to many companies negatively affected by COVID-19, Micron’s (MU) failure to ignite is more unique. The chip specialist operates in the semiconductor sector, home to several companies that have made use of coronavirus-driven tailwinds. Micron, however, has been unable to capitalize, with shares down by 15% since the turn of the year.
What’s more, the economic downturn and reduced expectations recently led the company to cut its F1Q (Nov) revenue guidance as it warned investors cloud customers were likely trim back spending in 2HCY20.
If that wasn’t dispiriting enough, recent macro developments are set to further impact its business.
The long running US-China trade feud has resulted in a ban by the US administration on Chinese telecom giant Huawei. The deadline for shipments – the end of the “grace period” - is approaching, and the ban will come into effect on September 14.
BMO analyst Ambrish Srivastava estimates almost 10% of MU’s overall revenue comes from Huawei, with the ban leaving Micron “in a tough spot.” It normally takes four months in the semiconductor supply-chain until the product is finally shipped to customers, and the ruling has given Micron a month’s lead time to adjust its plans.
The 5-star analyst said, “We believe Micron will be able to recoup some of the business that is lost due to the ban on Huawei, with a net negative impact of about 4% of lost revenues in fiscal 1Q. We are hence adjusting for that loss, on top of the earlier lower view that the company had provided for fiscal 1Q. For fiscal 1QE20, we now estimate revenues/EPS of $4.9 billion/$0.57, vs. our earlier $6.1 billion/$1.02 (unadjusted for prior negative commentary), and consensus’ $5.6 billion/$0.78. Our FY2021 estimates are a lot lower too, and are now at $21.2 billion/$3.15 vs. prior $24.9 billion/$4.90, and consensus’ $24 billion/$4.25.”
Accordingly, Srivastava reiterated a Market Perform (i.e. Hold) rating on MU shares alongside a $47 price target, which implies a modest upside from current levels. (To watch Srivastava’s track record, click here)
Overall, despite Micron’s problems, the Street has a more positive take. Based on 16 Buys, 8 Holds and 1 Sell, the chipmaker has a Moderate Buy consensus rating. At $62.09, the average price target could provide investors with returns of 36% in the year ahead. (See MU stock analysis on TipRanks)
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