The Ratings Game: Micron sees benefits from at-home trends, but analysts aren’t totally convinced

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Micron Technology Inc.’s latest results and commentary indicated that the company could see benefits as more people are forced to stay home due to the COVID-19 pandemic, but analysts still have some questions about how resilient the company’s business will be during the crisis.

“As we expected, we are seeing a near-term surge in PC demand as enterprises equip their workforce with laptops to work from home,” Needham analyst Rajvindra Gill wrote after Micron’s MU, +5.81%  earnings report Wednesday. “Meanwhile, the significant increase in the usage of videogaming, e-commerce, and virtual learning is placing enormous pressure on the network, hence driving hyperscalers and enterprises to build out cloud infrastructure.”

Opinion: Micron CEO remains optimistic even as coronavirus ushers in ‘unprecedented times’

Micron also gave a May-quarter forecast that came in above the consensus view. While Gill is encouraged that the company’s business seems to be holding up during uncertain economic times, he said he is still taking a cautious view in his August estimates and other forward-looking numbers due to the evolving public-health crisis.

Gill lowered his price target on the stock to $63 from $70 while maintaining a buy rating.

The shares are up about 5% in morning trading Thursday and were the subject of a double upgrade from Bank of America Merrill Lynch analyst Simon Woo, who cheered the work-from-home momentum as well.

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Susquehanna’s Mehdi Hosseini also maintained his positive long-term view on the stock, though he questioned the true strength of the work-from-home tailwinds.

Micron “does not have much visibility on demand destruction due to the spread of the coronavirus in Europe/North America, nor do we entirely agree with the notion of telecommuting driving insatiable demand for memory bits,” he wrote. “As we noted earlier this week, telecommuting is best accommodated via VDI (virtualization via the likes of Citrix/Nutanix).”

He has a mixed perspective on the near-term outlook, arguing that while the depth of “demand destruction” in Europe and North America remains a question mark, Micron also has heavy exposure to China and is positioned to benefit from a rebound there.

Hosseini kept a positive rating and $85 price target on the stock.

Pricing trends were also the subject of debate in the analyst commentary that followed Micron’s report.

“Supply disruptions of certain raw materials, equipment, and importantly Malaysia back-end disruptions, strongly suggest more memory tightness ahead as supply chain will continue to hold on to inventories and as supply is constrained with demand either picking up (smartphones, notebooks, gaming) or remaining strong (data center), in turns benefiting pricing and gross margin in quarters ahead,” wrote Baird analyst Tristan Gerra, who has a neutral rating and $55 target price on the stock.

See also: Analog Devices pulls quarterly forecast due to COVID-19

Instinet’s David Wong was more concerned, however.

“We think there is substantial risk that the economic fallout of the virus issues could result in substantial end market demand weakness as the year progress, pressuring memory prices,” he wrote.

Wong has a neutral rating and $45 target price on the stock.

Micron’s stock has dropped 15% over the past month, as the PHLX Semiconductor Index SOX, +4.83%  has fallen 12% and as the S&P 500 SPX, +4.83%  has lost 17%.

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