Analysts Still Have Not Capitulated on Micron

It’s a tough job being a leader in DRAM and flash memory during a global slowdown affecting chip companies and other cyclical companies. Micron Technology Inc. (NASDAQ: MU) was trounced to new 52-week lows after earnings and guidance disappointed investors.

Before getting into the earnings report and the reaction, note that many analysts on Wall Street are still conducting their “downgrade-lite” calls. This is where analysts maintain their ratings but slash their price targets on stocks. It is part of the issue to watch for discussed in our dire warnings about analyst calls in bear markets.

Micron’s first-quarter results were $2.97 in earnings per share (EPS) and $7.91 billion in revenue. Consensus estimates were $2.96 in EPS and $8.02 billion in revenue, and $2.45 in EPS and $6.8 billion in revenue were posted a year earlier. Gross margin in the latest period totaled 59.0%, compared with 55.4% in the fiscal first quarter of 2017. Micron issued guidance in its conference call for the second quarter at $1.75 EPS, plus or minus 10 cents, and $5.7 billion to $6.3 billion in revenues. The Thomson Reuters consensus estimates had called for $2.44 in EPS and $7.34 billion in revenue.

24/7 Wall St. has tracked many analyst calls on Wednesday after the earnings report. These are shown below. With so many analysts maintaining their positive ratings here, even though some have slashed price targets more than once or twice over 2018, the reality is that this still does not feel like a true capitulation among the analyst community.

Two key formal downgrades were issued on Wednesday morning. RBC Capital Markets cut Micron to Sector Perform from Outperform, noting sizable risk for lower earnings, revenue and margin well into 2019. Needham downgraded it to Hold from Buy. While these are formal downgrades, there are still many positive ratings that were followed by lower price targets ahead.

Merrill Lynch maintained its Buy rating but cut its price objective to $50 from $55, but it is still more bullish than many other firms at this time. The firm noted a mixed implication for peers and supply chain stocks along the semiconductor industry with weaker capital spending and likely weaker chip demand in 2019.

Other analysts have slashed their targets yet again, based on the expectations for 2019, as follows:

  • Barclays (Overweight) to $46 from $50
  • Deutsche Bank (Buy) to $48 from $60
  • KeyBanc (Overweight) to $45 from $61
  • MKM Partners (Buy) to $44 from $50
  • Morgan Stanley (Equal Weight) to $33 from $48
  • Wells Fargo (Outperform) to $50 from $63

CFRA (S&P Global) has a Hold rating and cut its target price to $36 from $40. The caution is on how much guidance was lowered (18% short) and the decline in average selling prices. Still, the firm remains positive about the company’s overall position long-term. CFRA’s Angelo Zino said:

We think Micron is the best positioned it has ever been entering a cyclical memory downturn, with a net cash position of $3.1 billion, but believe visibility on margins/EPS is low as a cyclical trough remains elusive. We think plans to reduce capital expenditures are prudent and note that this follows peers, which should help stabilize margins in the second half of calendar year 2019.

Sanjay Mehrotra, Micron Technology’s president and CEO, tried to be positive about how the company was positioned ahead. Unfortunately, no one listens to that during bear markets and when guidance is so much lower. He said:

Micron reported strong profitability in the fiscal first quarter, highlighted by double-digit year-over-year revenue growth across our major markets and solid business execution. Despite weak near-term industry supply-demand dynamics entering calendar 2019, Micron is well-positioned to deliver healthy profitability throughout the year. We remain bullish on the long-term secular growth trends driving the memory and storage industry.

Micron was up 0.7% at $34.11 ahead of the earnings report on Tuesday, but the stock was down about 6% around $32.00 after the opening bell on Wednesday. Its prior 52-week low was $33.60, and its consensus target price ahead of the report was $57.00.  Sadly, Micron is now down about 50% from its highs.