Wall Street Divided On Buying The Micron Dip

Micron Technology, Inc. MU stock dropped 2.7 percent Wednesday after the company reported fiscal first-quarter revenue of $7.91 billion, short of consensus Wall Street expectations of $8.02 billion. Micron said back in September President Trump’s ongoing trade war with China would impact Micron’s business, and the company said Tuesday the trade war cost Micron half a percent of gross margin in the most recent quarter.

Wall Street analysts are mixed on whether or not the 43 percent sell-off in Micron over the past six months is a buying opportunity for long-term investors. Here’s a sampling of what some analysts had to say about Micron's print.

Tough Environment

Deutsche Bank analyst Sydney Ho said Micron is facing a tough environment, but the company is structurally more profitable than in the past.

“We are encouraged that MU is reacting quickly by reducing capital spending and planned bit shipment output, which, along with capex push-outs by other memory suppliers, should set up for a recovery starting in mid-2019,” Ho wrote in a note.

Morgan Stanley analyst Joseph Moore said Micron’s guidance suggests a tough road ahead.

“Revenue guidance was at the low end of our down 20-25% expectation, but the bigger issue is the inventory build, which accelerates future supply,” Moore wrote.

Solid Cash Flow

Wells Fargo analyst Aaron Rakers said reductions in capacity growth is a positive for Micron.

“We think Micron’s reduced capex/capacity guide ($9.0-$9.5B vs. prior $10.5B +/-5%), technology execution, our expectation of sustained positive FCF, Micron’s aggressive share repo activity, and a valuation nearing a bottoming 1x price/book level should entice a more active (constructive) risk/reward dialogue,” Rakers wrote.

Raymond James analyst Chris Caso said Micron’s cash flow is impressive, but the stock is appropriately valued given the risks the company is facing.

“Management indicated demand continues to weaken, with headwinds related to inventory corrections and CPU shortages expected to continue for the next couple quarters, into the company's F3Q,” Caso wrote.

Still Too Early?

Barclays analyst Blayne Curtis said Wall Street may not be convinced that guidance and earnings have bottomed just yet.

“Net net, the market has been expecting a reset for some time and this goes a long way to delivering the trough people want but probably not the full way to de-risk the memory market and we think the stock will take a little longer to work,” Curtis wrote.

UBS analyst Timothy Arcuri said it’s still probably too early to be buying Micron at this point, but traders should be keeping an eye on the stock following its earnings sell-off.

“It is still probably a bit early to go all-in here as we are only 2Qs into what would typically be a ~6Q+ cycle, but in cyclical biz, these are times you should really start paying attention and doing work on this stock as 2019 could ultimately end up to be a good year for MU stock,” Arcuri wrote.

Longbow Research analyst Joe Wittine said Micron is at least approaching a near-term bottom.

“We would consider getting more bullish with increased visibility in the 2H recovery, and understand [long-term]-oriented investors buying here,” Wittine wrote.

Ratings And Price Targets

• Barclays has a Neutral rating and $46 target.
• Deutsche Bank has a Buy rating and $48 target.
• Morgan Stanley has an Equal-Weight rating and $33 target.
• UBS has a Neutral rating and $38 target.
• Longbow has a Neutral rating and no target.
• Wells Fargo has an Outperform rating and $50 target.
• Raymond James has a Neutral rating and no target.

The stock traded around $33.22, down 2.6 percent at time of publication.

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