The company’s shares are rebounding thanks to unexpected market changes.
After a rocky start to 2019, things are finally starting to look up for memory-chip manufacturer Micron…
Trade war tensions have eased with China and the company can continue doing business with Huawei. Micron released its third-quarter earnings report and beat investor expectations.
All of this caused USB to raise its price target on Micron from $37 to $47 per share. However, USB says that 2020 will be a rebuilding year for Micron.
3 Reasons Things Are Looking Up for Micron
Micron’s shares finally show signs of rebounding and give investors a reason to be hopeful about the stock. Here are three things that are going well for Micron.
Micron is paying off its debt to Intel
In January, Micron paid Intel $1.5 billion to acquire the company’s 49% stake in flash memory. This strategic investment gave Micron the ability to accelerate its research and development and optimize its manufacturing plans.
The acquisition caused Micron’s shares to drop nearly 2% while Intel’s shares rose slightly. The company’s recently shares went up after announcing it registered to offer senior notes to pay off the debt to Intel.
The trade war with China has de-escalated
Many U.S. companies were affected by the trade war with China but it hit Micron especially hard. Mainly due to the ban on the Chinese company Huawei. The ban prevented U.S. companies from doing business with Huawei.
Huawei accounted for 17% of Micron’s revenue during the first half of 2019 and the company’s shares fell at the news. Fortunately, the ban was short-lived and Micron can continue doing business with Huawei.
Elevated DRAM prices could help the company
Micron earns the majority of its revenue from DRAM memory chips with NAND chips coming in at a close second. DRAM prices rose substantially in 2016, causing a large boost in revenue for the company.
DRAM prices started to drop in 2019, and Micron’s shares fell accordingly. But recently, the prices suddenly spiked due to a trade dispute between South Korea and Japan. If the prices stay up, this will be very good news for Micron.
But Micron Isn’t Out of the Woods Just Yet
These are all positive indicators for Micron but the company still has a way to go before it can breathe easier. Yes, the company’s earnings report beat expectations but only because it wasn’t as bad as many investors feared.
The company’s revenue is down by 38% from where it was a year earlier. And the company lowered its guidance for the rest of the year.
The trade war tensions with China aren’t over entirely and there’s no guarantee the spike in DRAM prices will last. All this serves as a reminder that it will take time for the company to get back to its all-time high of $60 per share.
