Street Debates Micron's Stock After Q4 Disappoints

Memory and storage solutions company Micron Technology, Inc. MU reported Thursday with fourth-quarter results and a disappointing outlook.

Micron shares immediately traded lower following the print, and the Street debated if investors should be buyers of the dip.

The Good, Bad In Q4

Micron reported a top-and-bottom line beat in the fourth quarter.

The DRAM business showed an approximate 1% sequential revenue increase, and NAND revenue was up 5%, RBC Capital Markets analyst Mitch Steves said in a note.

Bulls can look at the print and conclude the company is "past the bottom" on NAND, while DRAM is starting to bottom, the analyst said. 

On the other hand, bears will continue highlighting Sino-American trade tensions, especially the Huawei ban, he said.

This implies the sector is not only "un-investible," but there is "no line of sight to a clear recovery," Steves said. 

While Micron's report was "far from squeaky clean," BMO Capital Markets analyst Ambrish Srivastava said investors should be patient and buy the stock on the weakness ahead of an "eventual recovery."

Micron emerged from its report as a "structurally more profitable company," and the case for upside in the stock remains unchanged, the analyst said. 

Related Link: Longbow Upgrades Micron As Memory Market Fundamentals Improve

DRAM, NAND Outlook

DRAM cost reductions in fiscal 2020 will be a high single-digit, which is less than what was seen in 2019, Mizuho Securities analyst Vijay Rakesh said in a note.

The company has limited opportunities for NAND cost reductions as it moves to a replacement gate, the analyst said. 

Nevertheless, the company's performance in 2020 "should look better" due to catalysts across the 5G and data center markets, he said. 

Guidance Outlook

Micron's fiscal first-quarter guidance for a 400-basis point decline in gross margins to 26.5% is disappointing, Wedbush analyst Matt Bryson said in a note.

The outlook comes at a time when the company's commentary is focused on improving fundamentals, the analyst said. 

Near-term concerns remain unchanged, including softening handset trends and PC builds in the late fourth quarter through the first quarter time frame, he said.

Yet the memory market is likely one or two quarters away from bottoming, which gives investors reason to believe that increasing earnings will be seen afterwards, Bryson said. 

The likelihood of a gross margin recovery in fiscal 2020 remains questionable due to limited DRAM cost improvements, while NAND cost declines won't be notable until Micron fully ramps the new replacement gate technology in fiscal 2021, KeyBanc Capital Markets Weston Twigg said in a note.

The company also highlighted underutilization related to IMFT and a change in the depreciation schedule for NAND equipment, the analyst said. 

It will be "hard to predict" if gross margins will move higher in the near-term, although they should move higher from 29% in fiscal 2020 to 38% in fiscal 2021, he said. 

Ratings And Price Targets

RBC maintains at Outperform, unchanged $55 price target.

• BMO maintains at Outperform, unchanged $60 price target.
• Mizuho maintained at Buy, unchanged $50 price target.
• Wedbush maintained at Neutral, price target lifted from $30 to $44.
• KeyBanc maintained at Overweight, price target lifted from $58 to $59.

Price Action

Micron shares were down 11.09% at $43.21 at the close Friday. 

Related Link: Citi: Micron Cons Outweigh The Pros At This Point

Photo courtesy of Micron.