We already know the most recent quarter was not a good one for Micron (MU) although the memory giant will give us a detailed account when it delivers its fiscal fourth quarter statement (August quarter) next Thursday (September 29).
The company issued a warning regarding the quarter when in August it said revenue will likely come in at or beneath the low end of its previously guided range of $6.8-7.6 billion, and that it anticipates meaningful sequential drops in revenue and margins.
As such, looking ahead to the print, Deutsche Bank’s Sidney Ho does not expect “much deviation from the revised outlook.” That said, the 5-star analyst adds a note of caution, by conceding that since then, the demand environment “has gotten worse.” And this is set to impact the current quarter.
“We expect F1Q (Nov) to remain challenging for MU as inventory adjustments in the supply chain continue, which now seem to have spread to enterprise OEMs and cloud customers,” Ho explained. “Our latest checks suggest ASP erosion remains severe, while bit demand has also slowed as customers are becoming more cautious on the macro environment.”
Ho now thinks “demand weakness” in the PC and smartphone markets is unlikely to abate before the year is out. Additionally, the company’s F1Q guide could also be at risk given the “prolonged demand weaknesses” in China as flagged recently by Western Digital and Seagate.
It’s not all doom and gloom, however. Although over the near-term, inventory days will most probably rise steeply due to the “supply-demand imbalance,” Ho takes heart from the cuts to capex (estimating these will be down by ~30% year-over-year to $8 billion in FY23), while the company is also “proactively taking actions to limit its supply growth.” Utilization is being cut, which by as early as the first quarter of calendar year 2023, could affect supply.
All in all, Ho signs off on a positive note: “While we believe risks to near term estimates are evident, we, however, believe the stock trading at ~1.1x NTM book value is close to a cyclical trough, and we view the current risk-reward as attractive.”
Accordingly, Ho maintains a Buy rating on MU shares along with a $68 price target. The implication for investors? Upside of ~31% from current levels. (To watch Ho’s track record, click here)
19 other analysts join Ho in the bull camp, and with 3 additional Hold ratings and 2 Sells, the stock makes do with a Moderate Buy consensus rating. The forecast calls for one-year gains of ~41%, considering the average price target stands at $73.42. (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.
