Micron Stock Whiffs...Are Analysts Jumping Ship?

• Micron Technology, Inc. MU shares have been on a downward trajectory in 2015, and have lost 58 percent year-to-date.
• Several analysts reduced their estimates and price targets for the company.
• The analysts expressed concern over the company’s disappointing guidance, amid PC DRAM weakness.

Micron reported mixed results for FQ1, with pro forma EPS of $0.24 marginally beating expectations, and revenue of $3.35B, representing a 7 percent sequential decline and missing expectations.

The company’s quarterly revenue was impacted by weak PC DRAM pricing and competitive client SSD pricing.

Micron’s FQ2 guidance was significantly disappointing, with the mid-point of the operating income range being projected at a loss of $20MM. The company guided to a pro forma loss of -$0.12 to -$0.05 per share, significantly below the Street expectation of an EPS of $0.22. The guidance reflected continued weakness PC DRAM pricing as well as lower bit growth.

Pacific Crest

Pacific Crest’s Monika Garg maintained an Overweight rating on the company, while reducing the price target from $21 to $18. The EPS estimates for FY16 and FY17 have been reduced from $1.08 to $0.20 and from $1.87 to $1.37, respectively.

“A new Inotera agreement could lead to middle- to high-single-digit DRAM margin benefit from F3Q16, and Inotera should be immediately accretive when Micron closes the deal in C2H16,” Garg wrote. She added that over 50 percent of Micron’s DRAM bits would be converted to 20 nm by F3Q16, which would boost its DRAM margins.

Micron’s efforts to increase the proportion of TLC and enterprise SSDs should boost NAND margins in 2016. Garg further noted that NAND margins would also be helped when the company ramps 3D NAND in the back half of next year.

Wedbush

Wedbush’s Betsy Van Hees maintained a Neutral rating on the company, with a price target of $15. The EPS estimates for FY16 and FY17 have been reduced from $1.15 to $0.26 and from $2.24 to $1.46, respectively.

After generating profits for two years, Micron’s performance is being impacted by “continued weakness/ASP declines in PC DRAM, pricing pressure in NAND, technology transitions/ramps, and seasonality,” Van Hees wrote.

While visibility continues to be low and demand seasonally soft, memory pricing do not seem to have bottomed out. Micron indicated that bit growth from 20nm DRAM and 3D NAND ramps are likely to be backend loaded. The analyst expects Micron to incur operating losses for a few quarters, as it “navigates a rocky 1H FY:16.”

Summit Research

Summit’s Srini Sundararajan maintained a Buy rating on the company, while reducing the price target from $25 to $21. The EPS estimates for FY16 and FY17 have been reduced from $1.00 to $0.60 and from $1.80 to $1.50, respectively.

“Considering that DRAM capex will be materially down in C2016, we grudgingly leave the BUY rating unchanged. Also, it is not inconceivable that in addition ASP challenges, the increased opex and lowered GM could indicate some kitchen-sinking of costs in FQ2, prior to the Inotera deal consummation,” Sundararajan wrote.

Macquarie Research

Macquarie’s Deepon Nag maintained an Outperform rating on the company, while reducing the price target from $30 to $20. The EPS estimates for FY16 and FY17 have been reduced from $1.55 to $0.53 and from $2.09 to $0.74, respectively.

There are several catalysts for “patient investors,” including the 20nm transition, closure of the Inotera acquisition and potential Chinese investment, Nag said. He added, however, that Micron’s margins are unlikely to trough until the May quarter, unless there is a meaningful acceleration in PC demand.

“Our global memory team continues to be cautious on DRAM into CY16, although we do see some evidence NAND conditions are improving,” the Macquarie report noted.

Elsewhere On The Street

• Raymond James downgraded Micron from Strong buy to Outperform, while reducing the price target from $26 to $17.
• Cowen reiterated an Outperform rating, while lowering the price target from $24 to $22.
• Sterne Agee CRT maintained a Buy rating, while cutting the price target from $20 to $19.
• JMP maintained an Outperform rating, while reduced the price target from $30 to $27.
• Credit Suisse maintained an Outperform rating, while revising down the price target from $25 to $20.
• Topeka reiterated a Buy rating, while lowering the price target from $19 to $16.
• Bernstein maintained an Outperform rating, while reduced the price target from $23 to $20.
• Susquehanna maintained a Buy rating, while cutting the price target from $23 to $19.
• Baird had a Neutral rating, while reducing the price target from $15 to $13.