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Micron Slips on Soft Guidance, BofA Downgrades on 'Large but Insufficient Reset'

Published 07/01/2022, 02:52 AM
Updated 07/01/2022, 07:00 AM
© Reuters.  Micron Slips on Soft Guidance, BofA Downgrades on 'Large but Insufficient Reset'

By Senad Karaahmetovic

Shares of Micron Technology (NASDAQ:MU) are down nearly 4% in pre-open Friday after the chipmaker offered soft guidance amid worsening demand trends.

The chip company reported Q3 adjusted EPS of $2.59, compared to $1.88 in the year-ago period and above the analyst consensus of $2.45 per share. Revenue came in at $8.64 billion, up 16% YoY and in line with the consensus projection.

Adjusted gross margin stood at 47.4%, up from 42.9% in the same period last year and below the expected 47.9%. Micron reported $3.84 billion in cash flow from operations, up 7.8% YoY, missing the consensus estimates of $4.42 billion.

For Q4, the company expects adjusted EPS in the range of $1.43 to $1.83, well below the analyst consensus of $2.57 per share. Revenue is estimated to range between $6.8 billion and $7.6 billion in the fourth quarter, widely missing the estimated $9.14 billion. Micron expects Q4 adjusted gross margin to be in the range of 41% to 44%, while analysts were looking for 47.9%.

“Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023. We are confident about the long-term secular demand for memory and storage and are well-positioned to deliver strong cross-cycle financial performance,” said Micron’s CEO Sanjay Mehrotra.

Micron’s board announced a quarterly dividend of $0.115 per share Thursday, which will become payable in cash on July 26.

Bank of America analyst Vivek Arya downgraded shares of Micron to Neutral from Buy with a $62.00 per share price target, down from $70.00.

“As expected, MU is impacted by: 1) weak consumer (PC/smartphone) demand; 2) China lockdowns (nearly half of sales miss); and 3) slower enterprise sales (as downstream customers constrained by other components such as network interface cards)... Valuation is low, and a large reset provides a near-term stock rebound potential, but fundamental growth recovery could be well into CY23 in our view,” Arya told clients in a downgrade note.

He added that Micron’s results are a negative read for Intel (NASDAQ:INTC), AMD (NASDAQ:AMD), and semicaps Lam Research (NASDAQ:LRCX), Applied Materials (NASDAQ:AMAT), and KLA Corp. (NASDAQ:KLAC). 

Mizuho analyst Vijay Rakesh cut the price target on Micron shares to $84.00 per share from $95.00 to reflect softening demand.

“While we had cut estimates below consensus, we did not cut enough,” Rakesh told clients in a note.

Still, the analyst maintained a Buy rating amid “historical cycle-low valuations and reflecting challenges.”

Raymond James analyst Melissa Fairbanks cut the price target to $75.00 per share from $115.00 after a “reset” quarter.

“While the F4Q outlook reflects these near-term headwinds, we believe the reset was generally expected given increasingly bearish macro concerns. That said, we are encouraged by the company’s commitment to protect profitability, and while it may take time for the overall market to respond to lower demand signals, MU’s decision to reduce bit output and cut capex for FY23 sets the company up to better weather near-term turbulence – executing toward the cross-cycle profitability targets. Finally, MU maintains a technology and cost advantage in the industry, which we believe provides an incremental buffer to margins versus peers through the cycle,” the analyst told clients in a note.

Finally, Fairbanks sees “room for significant upside as supply/demand begins to normalize.”

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