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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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
COVID-19 has been disastrous for many companies across a plethora of industries, yet some have reaped the benefits of the pandemic’s disruption. Take online education specialist Chegg (CHGG), for example. The remote nature of its core business has driven an increase in sales, which is reflected in its outstanding market performance. To wit, CHGG shares are up by 95% year-to-date.
But might sentiment be cooling down?
Needham analyst Ryan MacDonald believes investors are concerned about “the potential for uncertainty caused by COVID-19 to result in a sharp decline in enrollments for the fall semester.”
However, MacDonald thinks the concerns are misplaced. While acknowledging “individual schools recently have reported issues with lower enrollments,” the analyst argues there’s a reassuring explanation for the declining figures. According to survey data recently released by Eduventures Research, enrollments are “not so much declining, but shifting towards in-state schools away from out-of-state public and private universities.”
Among the 49,277 college-bound high school students surveyed, there was a 6% year-over-year increase in the number of students deciding to enroll in an in-state public institution compared to a 5% year-over-year decline in the number of students picking an out-of-state public university. Additionally, there was a 3% year-over-year drop when it came to private university attendance.
“In our view,” the 5-star analyst said, “This alleviates concerns of a sharp decline in enrollments for the fall semester, which we view as the greatest near-term risk to our investment thesis on Chegg... When combining this with Chegg's multiple levers to drive subscriber growth (international, account sharing, and Mathway adoption) and ARPU expansion (Study Pack and Thinkful adoption), We believe Chegg can maintain elevated subscriber growth.”
“As such,” MacDonald concluded, “Chegg remains our Conviction List idea.”
Unsurprisingly, then, MacDonald keeps his Buy rating as is, alongside a $100 price target. What’s in it for investors? Potential upside of 39%. (To watch MacDonald’s track record, click here)
Does the rest of the Street beg to differ? Hardly. Based on 10 Buys and 2 Holds, Chegg has a Strong Buy consensus rating. A 29% premium could be added to the shares, should the $95.25 average price target be met over the next 12 months. (See Chegg stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.