On Thursday, BofA Securities maintained its Buy rating on Micron Technology (NASDAQ:MU) with an unchanged price target of $170. The firm's analysis follows Micron's second fiscal quarter results, which slightly exceeded expectations, and a third-quarter forecast that met predictions. The company is in the process of fully ramping up its HBM3e production, which is used in NVIDIA (NASDAQ:NVDA)'s H200 series, and is projected to generate sales in the hundreds of millions of dollars in fiscal year 2024. Sales are expected to reach a multi-billion dollar annual rate in fiscal year 2025, growing three to four times year-over-year.
Management has confirmed that both calendar year 2024 and 2025 production volumes are completely sold out, with prices largely secured. This provides a clear outlook for Micron's sales growth and margin expansion. The High Bandwidth (NASDAQ:BAND) Memory (HBM) is noted to be gross margin accretive for Micron. Additionally, the firm highlights growth opportunities in high-capacity DDR5 and data center SSDs due to increasing demands from both AI and traditional servers.
The edge AI market, which encompasses PCs, tablets, and smartphones, is also expected to contribute to growth, with annual unit sales reaching 1.5 to 2.0 billion. This could potentially add 4-8GB of DRAM content per unit, representing a 50-100% increase. BofA Securities anticipates Micron's sales to grow by 78% and 41% year-over-year in calendar years 2024 and 2025, respectively. The firm also projects that profit per share will increase by 178% and 14% during the same periods.
The valuation for Micron is set at 3.1 times the projected price-to-book (P/B) ratio for calendar year 2025, which is at the top end of the historical range between 0.8 and 3.1 times. This valuation is supported by the additional growth expected from AI unit sales and pricing tailwinds. Furthermore, the report suggests that increasing capital expenditures and advancements in HBM and DRAM technology are positive indicators for semiconductor capital equipment vendors, especially Applied Materials (NASDAQ:AMAT) and Camtek (NASDAQ:CAMT), which are covered by BofA Securities.
In other recent news, Micron Technology's financial performance has been a subject of multiple analyst reviews. CFRA maintained a Buy rating on Micron, adjusting its fiscal year 2024 earnings per share (EPS) forecast to $1.17, up from the previous estimate of $1.04. The company reported earnings of $0.62 per share for the May quarter, surpassing CFRA's estimate of $0.53 and marking a significant improvement from the $1.43 loss per share in the comparable period.
Revenue and gross margin guidance provided by Micron align with expectations, with sales increasing by 17% from the February quarter and 82% year-over-year. TD Cowen, Piper Sandler, UBS, and Barclays have all adjusted their price targets for Micron, maintaining a positive outlook on the stock. Micron's third-quarter revenue surpassed estimates, reporting a revenue of $6.81 billion.
The company's fourth-quarter revenue projection of $7.6 billion, primarily driven by the sale of its HBM chips, matched average analyst predictions. Micron also announced plans to increase its capital expenditures in the coming year, with about half of this investment aimed at expanding production capacity through the construction of new fabrication plants. UBS revised its EPS estimates for Micron for calendar years 2025 and 2026, reducing them by approximately 10% and 14%, respectively, but maintained its Buy rating.
InvestingPro Insights
As Micron Technology (NASDAQ:MU) garners a Buy rating from BofA Securities, with promising prospects in the HBM3e production and a solidified position in the semiconductor industry, key metrics and insights from InvestingPro further illuminate the company's financial landscape. With a substantial market capitalization of $157.64 billion, Micron demonstrates significant industry presence. Notably, despite a negative P/E ratio of -101.46, the company's PEG ratio stands at an intriguing 0.13, suggesting potential for growth when considering earnings projections. Additionally, Micron's price to book ratio as of the last twelve months ending Q2 2024 is 3.6, reflecting a valuation that investors may weigh against the company's assets and future growth potential.
InvestingPro Tips highlight Micron's three-year streak of dividend increases and an expectation of sales growth in the current year, reinforcing the positive outlook presented by Bofa Securities. Moreover, with 10 analysts having revised their earnings upwards for the upcoming period, the sentiment around Micron's financial future appears optimistic. For readers looking to delve deeper into Micron's financials and future prospects, InvestingPro offers an array of additional tips and insights. Using the special coupon code PRONEWS24, readers can access these valuable resources at a discounted rate, with an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 15 more InvestingPro Tips available that can provide a comprehensive understanding of Micron's market position and future outlook.
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