Morgan Stanley Downgrades Micron, Says Street Outlook 'Too Optimistic'

After a hot start to 2019, one analyst said Thursday the Micron Technology, Inc. MU rally has run out of steam.

The Analyst

Morgan Stanley analyst Joseph Moore downgraded Micron from Equal-Weight to Underweight and reiterated his $32 price target.

The Thesis

Morgan Stanley’s fundamental outlook for Micron hasn't changed, but the stock’s 30 percent 2019 rally has shifted the risk-reward skew to the downside.

“Growing consensus view that earnings near a bottom this quarter seems much too optimistic given producer inventories climbing to 25-year highs,” he wrote in the downgrade note.

The NAND market is approaching a cyclical bottom, but the DRAM market should remain oversupplied into 2020, according to Moore. He said the NAND market may soon stabilize, but investors shouldn’t expect major improvement this year.

Moore says a recovery in memory demand in the second half of the year will not initially be strong enough to balance the market. He says inventory levels climbing to all-time highs of 150 days is a red flag for investors, and inventory levels will likely remain elevated through the end of the year.

Moore is forecasting fiscal 2020 EPS of $4.69, about 58 percent below Wall Street consensus. He says the long-term trading range for Micron stock will likely be between $30 and $60, but investors should anticipate seeing the low $30s price range again before the $50s.