Morgan Stanley Calls Micron Technology's Q4 A 'Modest Setback'

Quarterly Results And Analyst's Take

For the fourth quarter, Micron reported a non-GAAP EPS loss of -$0.05 on revenues of $3.2 billion (versus Morgan Stanley's estimate of -0.13/$3.1 billion and consensus' -$0.12 /$3.1 billion).

The company guided November quarter revenues of $3.7 billion versus Morgan Stanley's $3.37 billion and consensus' $3.46 billion. Non-GAAP EPS was guided to $017 at the mid-point, versus Morgan Stanley's $0.08 and consensus' $0.09.

Despite calling the company's guidance conservative, the brokerage was surprised at the quantum of increase in costs, especially in light of last quarter's announced headcount reduction.

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"Still, we think that guidance is conservative, and ultimately we still see EPS climbing back to a $2 run rate within 4 quarters, which is likely to drive the stock above our $20 fair value," analyst Joseph Moore wrote in a note.

Positives

Meanwhile, Moore remains positive on DRAM pricing and expressed confidence that better pricing will catch up to these ongoing transitional issues.

"While there are still contractual price declines in mobile with tier 1 customers that have to play themselves out, mobile pricing also looks likely to move higher in the more transactional markets in China," Moore continued.

The analyst agrees with Micron's view that 2017 DRAM supply will now be sub-20 percent given slower capex and expects DRAM strength to continue through next year.

"NAND is also strong, and while we have less conviction in the longevity of that strength, Micron's high level of transitional investment in 3D NAND and 3DX point creates a very low bar for improvement as we move through FY17," Moore noted.

But, Moore believes these setbacks are fairly normal as pricing starts to recover. That said, the analyst expressed frustration regarding Micron's limited monetization of strong pricing.

"We're not exactly sure how much of the weaker guidance reflects ongoing conservatism vs. actual increases in costs, and we wish that the company would return to higher transparency as to the underpinnings of expectations. But, with product on allocation and visibility to continued depressed supply, we still see significant improvement looking forward," Moore added.

In early Wednesday trading, shares of Micron fell 1.69 percent to $17.50. However, at last check, the stock had rebounded to $17.83.

Full ratings data available on Benzinga Pro.