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Micron Technology's valuation still looks attractive for longer-term investors, says Baird analyst

Tristan Gerra forecasts that Micron’s gross margin will not stabilize until the second half of fiscal 2019 and won’t rebound until fiscal 2020

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Based in Boise, Idaho, Micron is the second-largest supplier of memory chips globally, offering chips that include DRAM, NAND flash and NOR flash

A Baird analyst is sticking to his Outperform rating and his $75 price target for the US chipmaker Micron Technology, even though he thinks its gross margin and earnings per share both peaked in its last quarter.

Baird’s Tristan Gerra forecasts that Micron’s gross margin will not stabilize until the second half of fiscal 2019 and won’t rebound until fiscal 2020.

“Following nine consecutive quarters of expansion, Micron’s gross margin peaked in the just-reported quarter, along with EPS,” Gerra writes in a note to investors. “We are modeling gross margin somewhat stabilizing in F2H19 without any rebound likely until F2020.”

Despite this, the company’s valuation still looks attractive for longer-term investors as the “cyclicality of its earnings should be muted relative to prior cycles, given Micron’s mix and cost improvements, end-market diversification and new demand drivers,” according to Gerra.

READ: Micron Technology shares slip after CFO says Trump's tariffs will hit business and issues disappointing outlook

On the list of Micron’s other achievements, which should draw interest from investors, is the jump in its IM Flash technology sales to rival Intel, which came to  $507 million in 2018, up from $438 million last year.

Its cash flow from operations in the fiscal fourth quarter of 2018 rose to $5.2 billion, up from $3.2 billion in the year-ago quarter while its free cash flow over the same period amounted to $2.9 billion, up from $1.7 billion last year.

Micron repurchased about $1.65 billion of common stock between the end of fiscal 2018 through October 12.

Revenue from Micron’s Compute and Networking group jumped 53% in the fiscal fourth quarter to $4.36 billion due to demand from the cloud server, enterprise server and graphics markets. Mobile revenue was also up 61% in the fiscal fourth quarter to $1.9 billion thanks to higher memory content in smartphones, which pushed up sales volumes and improved the pricing of DRAM chips.

Gerra is sticking to his US$75 price target on Micron, which was pared back from US$100 last month.

Based in Boise, Idaho, Micron is the second-largest supplier of memory chips globally, offering chips that include DRAM, NAND flash and NOR flash.

Micron’s memory chips are used to store information, in comparison to microprocessor chips made by companies like Intel, which provide computing power.

Micron shares traded 2% higher to hit $43.22 in Tuesday’s afternoon trading session.

Quick facts: Micron Technology, Inc.

Price: 50.675 USD

NASDAQ:MU
Market: NASDAQ
Market Cap: $56.14 billion
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