Micron Posts Q4 Beat, But Morgan Stanley Is Concerned With Chipmaker's Guidance

Micron Technology, Inc. MU reported Thursday afternoon with fiscal fourth-quarter results that came in ahead of expectations, but the chipmaker's guidance signals a potential downturn in the memory market, according to Morgan Stanley.

The Analyst

Morgan Stanley's Joseph Moore maintained an Equal-weight rating on Micron Technology with a price target lowered from $65 to $48.

The Thesis

Micron did report a sizable Q4 beat, but Q1 guidance fell short of expectations and confirms that recent concerns of a potential downturn in the memory market remain, Moore said in a Friday note. (See the analyst's track record here.)

The company cited Intel Corporation INTC microprocessor shortages and a few limited inventory adjustments in its guidance — "narrow and temporary" factors, the analyst said. Yet the impact of poorer bit demand implies Micron and the entire industry are likely to build inventory in the strongest seasonal quarter, he said.

If Micron is building inventory in the coming quarter, it will translate to incremental supply in the already seasonally weak early 2019 period, and the downward pressure on prices will serve as an incentive for customers to minimize their own inventories, Moore said.

Even if the sector is entering a period of weakness, a bearish stance on Micron's stock is difficult to justify, according to Morgan Stanley.

Shares of Micron are trading at a low P/E multiple with high cash flow generation, a large buyback program and structural improvements that should "insulate the stock to some degree," Moore said. The analyst views the risk-reward profile as being relatively balanced, although Moore said incremental erosion in the market could necessitate a more cautious view on the stock in the future.