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Stocks  | June 17, 2019

Micron Technology stock will rally because the difficult chip environment is priced into its current valuation, according to Bank of America Merrill Lynch.

The back story. Micron stock (ticker: MU) has been sliding for the past month as hope for a recovery in chip prices has faltered. A few months ago, the stock was up more than 30% for the year.

The chip maker is a leader in the DRAM and NAND memory-semiconductor markets. DRAM stands for dynamic random-access memory, which is used in desktop computers and servers, while NAND is flash memory, found in smartphones and solid-state hard drives.

What’s new. Bank of America Merrill Lynch analyst Simon Woo on Friday lowered his earnings estimates for Micron due to deteriorating memory prices. He reaffirmed his Buy rating for the stock.

The “DRAM spot market price has already been weaker than expected,” he wrote. “A bearish guidance at the 3Q FY19 results call and consequent consensus estimate cuts should not be a surprise for investors.”

The analyst lowered his Micron earnings per share estimates to $5.01 from $5.93 for fiscal 2019 and to $2.68 from $5.51 for fiscal 2020.

Despite the weak near-term industry conditions, the analyst is optimistic over the long term due to the company’s low valuation.

Micron stock was down 2.1% to $32.67 on Friday. The company declined to comment on the report.

Broadcom ’s lower than expected annual guidance on Thursday also affected the general chip sector. The iShares PHLX Semiconductor ETF (SOXX), which tracks the performance of a widely followed semiconductor sector index, fell 2.8% on Friday.

Looking ahead. The analyst lowered his price target to $43 from $50 for Micron stock.

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