After the market action comes to a close today, Micron (MU) will step up to deliver its first-quarter fiscal 2023 results (November quarter).
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The computer memory space is known to be extremely cyclical, driven by changes in the demand/supply paradigm. In 2022, the cycle has shifted to one of a supply glut with memory chip demand at low levels, and softness in the PC and smartphone markets further driven down by the slowing global economy.
Micron appeared to be taking an extremely conservative stance when it guided well below Street expectations in its FQ4 earnings call. However, that might have still been an optimistic outlook, notes Wedbush analyst Matt Bryson.
“Conditions in memory deteriorated faster than anticipated, a topic management addressed on a November investor call, during which MU’s CFO indeed indicated they had underforecast pricing pressure,” Bryson said ahead of the print. “As such, we see some downside to forward revenues and earnings vs. our prior expectations.”
Having already called for “aggressive memory ASP declines” with both NAND and DRAM anticipated to decline by 20%+, Bryson is now tweaking numbers slightly lower for both memory components. Moreover, industry checks indicate that NAND trends are “particularly negative” with several factors “weighing” on the market.
The overall result is a new set of estimates for the quarter. Bryson now expects revenue of $4.1 billion and EPS of -$0.02, compared to $4.2 billion and $0.05, respectively, beforehand.
That said, despite lowering near-term earnings estimates, the analyst still has a “constructive outlook on the stock.”
“We continue to believe book value represents a worst-case trough ($44 TBV and $45 BV), particularly with MU having improved its technology position and balance sheet significantly since the last extended downcycle,” he explained.
And considering investors and industry players are always caught “somewhat by surprise when memory demand rebounds,” Bryson still sees the “price points around current levels as attractive entry points.”
As such, ahead of the print, Bryson rates MU shares an Outperform (i.e., Buy) along with a $65 price target. The figure implies one-year share appreciation of 28%. (To watch Bryson’s track record, click here)
Over the past 3 months, 23 analysts have chimed in with MU reviews and these break down into 16 Buys, 5 Holds and 2 Sells, all culminating in a Moderate Buy consensus rating. The shares are expected to change hands for a 26% premium a year from now, given the average target stands at $64. (See Micron stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
