'Light at the end of the tunnel:' Some analysts see improvements ahead for Micron after tough quarter
Source
Most analysts believe Micron Technology will undergo a recovery, even after the chipmaker reported fiscal second-quarter results disappointed. The chipmaker's earnings and revenue missed analysts' expectations amid a broader downturn in the semiconductor industry. Micron announced a per-share loss of $1.91 and revenue of $3.69 billion. Analysts polled by Refinitiv anticipated a loss per share coming in at 86 cents and revenue of $3.71 billion. While the company's revenue guidance for the third quarter was in line with expectations, it forecasted an adjusted loss per share of $1.58, higher than the expected losses of 90 cents per share. Nonetheless, shares were up 2.3% on Wednesday before the bell, after dropping 0.8% on Tuesday's trading session ahead of the earnings announcement. Goldman Sachs said in a Wednesday note that despite the muted fiscal third-quarter outlook and ongoing downturn, it remains bullish on the stock. "Although the sheer magnitude of the announced inventory charges and Micron's FY3Q (May) muted outlook ... remind us of the severity of the current downturn, we maintain our Buy rating on the stock as we expect supply discipline across the industry coupled with an improving demand outlook, albeit off a low base, to drive sequential growth in pricing, margins, earnings power and [free cash flow] in FY4Q (August) and through FY24," analyst Toshiya Hari wrote in a note on Wednesday. The firm has a price target of $65, which implies 9.6% from the stock's closing price on Tuesday. MU YTD mountain MU in 2023 UBS is also optimistic on the stock, anticipating that it will "continue to grow from here." Analyst Timothy Arcuri maintained his buy rating on the stock, and anticipates it growing 18% from its closing price on Tuesday. "Given the depth of the downturn, the fact that it didn't get cheaper despite the unprecedented depth of the downturn has frustrated many investors who would otherwise like to own the stock for the recovery. We think this simply reflects a consensus view that this really is, in fact, a better business going forward and this downturn was a COVID-related anomaly," Arcuri wrote in a Wednesday note. The analyst added that Micron "remains one of our top picks for this year." Wells Fargo also thinks Micron will see a strong recovery in its fiscal year 2024. Analyst Aaron Rakers is overweight on the stock and has a price target of $70, implying 18.1% upside from Tuesday's close price. Rakers wrote that he sees "increasing signs of down-cycle bottom" and anticipates "[gross margins] (post-F3Q23) to reflect lifting underutilization, inventory write-downs, & sell-thru of written down inventory." Meanwhile, JPMorgan said that it is "starting to see some light at the end of the tunnel" for Micron as inventory levels begin to improve. "We believe the team continues to manage well through a historically large supply-demand imbalance by employing everything at its disposal to rein in industry bit supply, including further cuts to capex," wrote analyst Harlan Sur. "From a stock perspective, we continue to believe MU has very little downside with the stock up ~19% YTD and currently trading near trough price/book. We believe the stock continues to move in a positive direction as we progress through 2023 as the market starts to discount revenue/pricing recovery in the 2H in response to the aggressive supply cuts, inventory write-downs, and an improved demand environment in the 2H," Sur added. JPMorgan reiterated its overweight rating on Micron shares. The firm has a price target of $75, implying 26.5% upside from Tuesday's close price. To be sure, not all analysts are as optimistic, with some believing that the semiconductor industry has yet to hit the bottom. Morgan Stanley analyst Joseph Moore has an underweight rating on Micron shares. His price target of $46 implies shares falling by almost a third from their closing price on Tuesday. "Parsing through the inventory writedown/utilization dynamics, gross margins in May are well below expectations, but as expected volumes are picking up. The inventory writedown dynamics make quarter to quarter less of an indicator, but our estimate for total cycle losses goes up," Moore wrote. "The lower-of-cost-or-market inventory accounting makes the quarterly numbers less indicative of underlying economics, but we generally would disagree with characterizations that this was 'in line' guidance, as gross margins are materially lower," Moore added. Micron shares have rallied more than 18% in 2023, but have tumbled 27.7% over the last 12 months. —CNBC's Michael Bloom contributed to this report.