RBC Capital reiterated its Outperform rating and $1,500 target for Micron on Sept. 18, saying its customer deals could make earnings more durable. Shares trade at about 6.5 times forward earnings, which RBC says fails to reflect their value.
Micron says its 16 Strategic Customer Agreements (SCAs) cover roughly 20% of DRAM volume and one-third of NAND volume over their contract periods, generally under take-or-pay terms. Fourteen of the 16 carry around $100 billion in cumulative minimum-price revenue over their remaining terms. The company expects about $22 billion in deposits and related financial commitments under existing SCAs, and management says planned agreements could bring at least half of revenue under SCAs. The largest deals have pricing floors and ceilings; Micron expects the floors to produce gross margins above its peak quarterly margins in previous memory cycles.
Memory prices can fall if supply catches up with demand, and Micron says a minority of its SCAs have no fixed prices or price bands. It also cautions that demand, inventory strategies and end-market conditions can change. The Q4 earnings report, scheduled for Sept. 30, will test whether pricing, margins and management's outlook support current earnings strength.
