Shares of Micron (MU - Free Report) were up more than 6% through early afternoon trading Wednesday, as investors reacted to an analyst note that foresaw bullishness for the beaten-down memory chip market. Micron has now rebounded roughly 23.5% over the past two weeks.
The positive report was delivered by Bernstein’s Mark Newman, who raised his rating for MU to “Outperform” and predicted that a turnaround in chip prices is on the horizon.
“After the sharp correction of memory stocks, and even with significantly lowered numbers, we now see more attractive risk/reward for 2019,” Newman wrote in a note. “Sharper downturn is leading to faster supply response and earlier recovery in late 2019. The speed of this downturn is happening faster than usual, which should be a good thing.”
Newman is describing a positive view of the ongoing cyclical rollover in the memory market. In his eyes, the peak-to-trough process will happen much quicker than in the past, and that’s a positive for investors.
The analyst now thinks that industry earnings will bottom in the second quarter of 2019. This will lead to stabilization in the second half of the year and earnings growth in 2020, according to today’s note. Given the forward-looking nature of stock prices, Newman thinks the risk/reward for Micron is “now too attractive to ignore.”
Newman’s optimism comes just one day after Samsung (SSNLF - Free Report) , the largest manufacturer of memory chips in the world, announced that its Q4 operating profit will decline by nearly 30%. This put pressure on Micron shares during Tuesday trading, although the stock managed to recoup nearly all of its morning losses.
Micron has now returned to levels it has not seen since before last month’s disappointing earnings report and guidance. The chip manufacturer in December said it expects Q2 earnings to fall in the range of $1.65 to $1.85 per share, which was well below where estimates were prior to the announcement.
Nevertheless, Micron still has a long way to go if it plans on returning to the high-flying peaks of early 2018. The stock remains more than 45% lower than its 52-week high.
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