'We Expect A Miss' For Micron Earnings, Wedbush Says

In a report published Monday, Wedbush analyst Betsy Van Hees maintained an Outperform rating and $31 price target on

. The company is likely to report its FQ3 below expectations. "We expect a miss due to declining PC DRAM ASPs, weak PC DRAM demand, and F/X and a guide down as the new CFO likely takes the bar down low," Van Hees elaborated. However, the analyst also believes that the gross margin for Micron Technology is bottoming out and that the company is likely to benefit in 2H15 from the launch of Win10, ramp in NAND TLC, and increase in mobile DRAM and server content. According to the Wedbush report, "With investors already expecting a fairly bad print/guide and the stock trading near its 52-wk low, we see a favorable set-up for investors with a higher risk/reward tolerance and believe the pullback has created a compelling entry point." Although industry checks indicated that PC OEM inventories have been elevated, the analyst expects the launch of Win10 to bring down inventories to a more normalized level in FQ4. Industry checks also revealed that LPDDR4 order trends have been improving in recent times, while mobile and server DRAM have been balanced. NAND supply/demand also appears balanced, with NAND inventory having been worked through. However, the checks also indicated that competition between client SSD and mobile remained intense, which is expected to drive down prices in CQ3 and CQ4. For FQ3, the analyst expects the company to report its revenue and EPS at the low end of the guidance range, below the consensus and the estimates, driven largely by the weak PC DRAM environment and Fx headwinds. "We also expect the new CFO Ernie Maddock who joined MU on 6/1 to use this opportunity to move the bar down low bringing another reset to Street estimates," Ven Hees added. The revenue and EPS estimates for FQ4 have been lowered from $4.17 billion to $4.0 billion and from $0.77 to $0.62, respectively.