Why Micron Analysts Are Holding Bullish Bias Despite Weak Q1 Guidance

Micron Technology, Inc. MU reported better-than-expected fourth-quarter earnings Tuesday, yet issued weak forward guidance. 

The Micron Analysts: Needham analyst Rajvindra Gill maintained a Buy rating and $130 price target for Micron shares.

Wells Fargo Securities analyst Aaron Rakers maintained an Overweight rating and $115 price target.

KeyBanc Capital Markets analyst John Vinh maintained an Overweight rating and $110 price target.

Mizuho Securities analyst Vijay Rakesh maintained a Buy rating and lowered the price target from $97 to $90.

Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and $165 price target.

Raymond James analyst Chris Caso reiterated a Strong Buy rating and $100 price target.

Morgan Stanley analyst Joseph Moore maintained an Equal-weight rating and $75 price target.

BofA Securities analyst Simon Woo reiterated a Buy rating and reduced the price target from $125 to $105.

Why Needham Says Rebound Likely In 2H 2022: Micron's revenue guidance was tempered due to lower-than-expected shipments to PC customers, Needham analyst Gill said.

The softness, the analyst said, was due to component shortages for non-memory components and some customers strategically stockpiling inventory earlier as a hedge against geopolitical risks.

Gross margin guidance was lower due to slightly unfavorable mix-shift expectations and COVID-19 cost increases hitting the back-end of manufacturing, he said.

The second half of 2022 is expected to see a rebound in bit shipment growth and further improvement in gross margins, helped by 1-a and 176L ramping production, he added.

KeyBanc On DRAM-NAND Dynamics: Micron's fourth-quarter DRAM ASP increased in high-single digits sequentially and bit shipments grew in low-single digits, KeyBanc analyst Vinh said.

In calendar year 2021, Micron continues to expect DRAM bit demand growth at the low 20% level as end-market demand remains strong and broad-based, the analyst said.

Demand for NAND remains solid and pricing is favorable, he said.

Micron continues to expect NAND bit demand growth of mid-30% for calendar year 2021, with similar demand trends as DRAM, Vinh said. 

KeyBanc said it is constructive on long-term secular growth in memory driven by data center, computing and 5G.

Micron Is Well-Positioned, Mizuho Says: Micron stock is reflecting most of the supply chain constraints and pockets of inventory while demand remains strong, Mizuho analyst Rakesh said.

The price target reduction was due to a conservative multiple Mizuho applied for the stock's valuation, the analyst said. 

"Despite near-term pricing risks, we believe MU remains well-positioned longer term with 176L 3D-NAND and 1-alpha DRAM ramps driving solid cost declines, and 5G/ Server/DC DRAM/NAND content growth," he said. 

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Rosenblatt On Line-Of-Sight For Extended Memory Cycle: Secular drivers such as AI, Edge computing, data center growth and deployments of 5G networks are creating opportunities for Micron, Rosenblatt analyst Mosesmann said.

In addition, DRAM and NAND now account for an ever-increasing portion of the bill of materials for customers, the analyst said.

Inventories, he said, are much better today than they were back in 2018.

In the PC market, semiconductor component shortages are causing customers to not able to fulfill all end demand, Mosesmann said. 

This is leading to purchasing adjustments that are impacting Micron in the short-term and will likely be short-lived and will work out in the coming months, Mosesmann said.

"The company's prudent FY22 CapEx outlook, strong FCF trends (return thereof to investors), and rock bottom BV valuation provides a strong foundation for investors to be aggressive on the name now that we have line-of-sight for an extended or stretched out (as management called it in the call-back) memory cycle."

Pullback Creates Favorable Risk-Reward, RayJay Says: If the slowdown remains constrained to PC, and if PC doesn't get worse, DRAM industry can maintain a healthy supply/ demand balance, RayJay analyst Caso said.

The pullback in the stock creates a favorable risk/reward, the analyst said. The analyst continues to see peak earnings power of $11-12 should the cycle continue into 2023.

Morgan Stanley Remains Cautious On DRAM Market: Customer inventories are elevated across the PC market and enterprise OEMs in server and communications, Morgan Stanley analyst Moore said.

"Our checks show elevated levels of DRAM at cloud as well, both on an absolute basis and relative to other component inventory at cloud," the analyst said.

In the peak seasonal quarter, we are seeing customers hold high inventory levels, and producers build from low inventory levels, for an overall aggregate inventory buildup across the ecosystem, Moore said.

Building inventory in the peak seasonal quarter, the analyst said, doesn't point to a likely recovery during a period of seasonal weakness in the first or second quarters.

MU Price Action: At last check, Micron shares were down 1.79% at $71.79.

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