Micron dips after weak guidance, analysts note 'substantial' correction amid uncertainty

Jul. 01, 2022 7:28 AM ETMicron Technology, Inc. (MU)AMD, INTC, AMAT, NVDA, LRCX, KLACBy: Chris Ciaccia, SA News Editor30 Comments

Micron headquarters in Silicon Valley

Sundry Photography/iStock Editorial via Getty Images

Micron Technology (NASDAQ:MU) shares tumbled on Friday after the semiconductor company posted mixed third-quarter results and issued guidance that was well below analysts' forecasts, prompting Wall Street to note that this may be a reset the stock is looking for in order to bottom.

UBS analyst Tim Arcuri, who rates Micron (MU) shares buy and lowered the price target to $90 from $100 noted the only way the company could see even more downside after the "substantial inventory/demand correction" it is seeing is if the server DRAM business were to "significantly weaken," which is unlikely to happen for several reasons. These include rising server component growth, the need for more memory and a server fresh that creates a so-called "demand cushion."

"We believe this should set the company up for excess returns once we come through this phase of customer inventory adjustment," Arcuri wrote in a note to clients, adding that the guidance is seen as a "key clearing event."

Micron (MU) shares fell nearly 5% to $52.55 in premarket trading.

Bank of America analyst Vivek Arya downgraded Micron (MU) shares to neutral from buy, while cutting the price target, noting that the company is obviously impacted by weak PC and smartphone sales, China lockdowns and slower enterprise sales. However, the analyst does not expect a rebound in the near-term.

"Valuation is low, and a large reset provides a near-term stock rebound potential, but fundamental growth recovery could be well into [2023] in our view," Arya wrote, adding there is a "negative read through" to companies like Intel (INTC) and Advanced Micro Devices (AMD).

The analyst also noted that Lam Research (LRCX), Applied Materials (AMAT) and KLA Corp. (KLAC) are likely to be affected, as Micron (MU) plans to cut 2023 wafer fab equipment spending.

Intel (INTC), AMD (AMD) and competitor Nvidia (NVDA) all traded lower on Friday on back of the report, led by a 1.5% decline in Nvidia.

BMO Capital Markets analyst Ambrish Srivastava, who rates Micron (MU) shares outperform, noted that investors should start buying the stock when fundamentals weaken and estimates are cut "sharply."

"And while there is likely one more shoe to drop, i.e., weakening datacenter demand, this is quite close to a capitulation," Srivastava wrote, adding that he cut his estimates by more than 50%.

For the period ending June 2, Micron (MU) earned an adjusted $2.59 on $8.64B in revenue. A consensus of analysts was expecting the company to earn $2.45 per share on $8.66B in revenue.

Chief Executive Sanjay Mehrotra said the industry demand had weakened "recently" and the company would take actions to moderate supply growth in fiscal 2023.

Looking ahead, Micron (MU) anticipates fourth-quarter revenue to be between $6.8B and $7.6B, with adjusted earnings per share between $1.43 and $1.83 per share. Analysts were expecting Micron (MU) to generate $9.05B in revenue and adjusted earnings of $2.62 per share.

On Tuesday, investment firm Barclays said weak pricing in both the dynamic random access memory and NAND markets could cause Micron (MU) to miss third-quarter estimates and provide weak guidance.

Analysts have been exceptionally positive on Micron (MU). It had an average rating of BUY from Wall Street analysts, while Seeking Alpha authors are slightly less positive on it, but still rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates MU a BUY.

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