Morgan Stanley Sets Expectations on Micron (MU) Stock Ahead of Today’s Earnings

Micron (MU) reports earnings after today’s closing bell, and investors are bracing for bad news. The stock is down more than 12% since late last month, when CEO Sanjay Mehrotra warned that revenue would be “near the low end” of their initial $7.9 billion to $8.3 billion range.

Morgan Stanley analyst Joseph Moore calls the memory climate “gloomy,” as he expects Micron to experience significant revenue decreases over the next few months. He remains cautious on the stock, reiterating his Hold position and $48 price target. (To watch Moore’s track record, click here)

Moore believes that revenue will decrease between 20-25% in February’s quarter, as DRAM and NAND demand “remains soft.” The analyst says, “most participants are indicating that bits shipped are likely down 10% or more in calendar 1q, and the consensus view that DRAM prices will be down 10% will likely prove optimistic.”

But Moore believes the “bigger issue is that even with these declines, we are nowhere near a market clearing price.” He says that “almost everyone that we talked to has indicated that our view that 4-5% of 2018 bits (which will be leftover for 2019) is too low.” This essentially means that Micron will most likely carry over a higher percentage of 2018 inventory than Moore had initially estimated. This will force the company to increase demand growth “30%…to catch up to supply.”

Looking to 2019, Moore says “a cautious February outlook is probably priced in, but the possibility that the February quarter could be the high watermark for the next couple of years probably isn’t. We believe there is more upside than downside, but the downside case seems more imminent/probable.” Finally, Moore says his price target is not based on short-term earnings.

Moore is playing it cautious compared to other Wall Street analysts. TipRanks analysis of 25 analyst ratings on the company shows an average price target of $57.00, or 68% higher than today’s level. Of the 25 analysts, 17 recommend Buy, 7 recommend Hold and one recommends Sell. (See MU’s price targets and analyst ratings on TipRanks)


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