Morgan Stanley Downgrades Micron, Says 2016 Is Uncertain

In a report published Monday, Morgan Stanley analyst Joseph Moore downgraded the rating on Micron Technology, Inc. MU from Equal-Weight to Underweight, while reducing the price target from $30 to $21, saying that the seasonal strength could come later than was previous expected, with increased uncertainty in 2016. Although the company was unlikely to be able to sustain the earnings it had generated in 2014, analyst Joseph Moore had expected "a sharp rebound" in 3Q, backed by Apple DRAM content. "After doing several channel checks in Taiwan last week, we believe that this seasonal lift is delayed at least until 4Q." Moore now expected prices to be weak through 3Q, given the excessive customer inventories. The server and graphics segments are most impacted by this weakness, while mobile continues to be more stable, albeit with lower-than-expected demand. In the report Morgan Stanley noted, "Further, we believe there is risk of mild excess supply in 2016 as all three vendors appear to think they can gain share, though there is still some variability to Samsung's approach. While we don't expect a return to historic memory troughs, we do see continued pressure to consensus EPS, and see the stock trading into the low $20s as earnings power declines to about $2." The EPS estimates for Q3 and Q4 have been reduced from $0.57 to $0.56 and from $0.63 to $0.52, respectively. Moore expressed concern regarding the risks to the 2016 earnings, saying that improving earnings from the current run rates "could be challenging."