Wall Street is an unforgiving place at times. On Tuesday, Micron (NASDAQ:MU) provided an update to its F1Q (November quarter) guide, and almost all of it was positive.
So, what’s the good news? Thanks to improved supply/demand dynamics and pricing, the memory giant now anticipates revenues for the quarter will reach ~$4.70 billion compared to ~$4.40 billion beforehand, while non-GAAP gross margins are expected to be near breakeven, vs. the prior forecast of -4.0%. In addition, management noted its expectation for gross margin to turn positive as early as F2Q (February quarter). Lastly, the company expects EPS will hit -$1.00, improving on the prior expectation of -$1.07.
But here’s the twist: the stock didn’t exactly cheer this news. Why, you ask? Well, it all comes down to the operating expenses (opex) forecast. Primarily down to the timing of select R&D expenses, asset sales, and higher incentive accruals, the company is forecasting F1Q opex of ~$990 million, an increase on the previous expectation of ~$900 million. That said, the company also implied that opex will drop sequentially in F2Q.
Deutsche Bank analyst Sidney Ho noted that the positive pre-announcement was not really a surprise to investors, so that might explain the fact investors chose to focus on the negative aspect of the update.
Ho, however, does view the update in an entirely positive light and expects some very promising developments to take place over the medium-term.
“Consistent with our in-quarter checks and commentary by memory peers, MU’s improved confidence over a continuation of supply/demand balance, as well as a more favorable pricing outlook for the remainder of FY24, support our view of the cyclical upturn of the industry and set the stage for memory to reach record levels in 2025,” the 5-star analyst explained. “We continue to believe the memory market is in the early stages of a cyclical recovery, and we expect to see strong EPS leverage over the next few quarters as memory prices improve.”
These comments underpin Ho’s Buy rating while his $85 price target suggests shares will climb 12% higher over the coming months. (To watch Ho’s track record, click here)
The rest of the Street mostly agrees with Ho’s stance but not conclusively so. Based on a mix of 19 Buys, 5 Holds and 1 Sell, the stock claims a Moderate Buy consensus rating. The average target, at $80.48, makes room for 12-month returns of a modest 7%. (See Micron stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
