New Street Research analyst Pierre Ferragu says recent weakness in Micron Technology stock represents an opportunity to buy.
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Investors’ expectations are low in the hours before Micron Technology reports its earnings this afternoon, but a disappointing result is likely already reflected in the stock price.
As consumer demand for PCs and smartphones weakens, estimates for both Micron’s (ticker: MU) fiscal third quarter, ended in May, and the current one have been ratcheting lower amid concerns about softening prices for both DRAM and NAND memory chips.
In reporting its second-quarter results, Micron had projected May quarter revenue of $8.7 billion, give or take $200 million, with gross margin of 48%, give or take a point, and non-GAAP profits of $2.46 a share, give or take a dime. Wall Street estimates have been falling—the consensus is now for revenue of $8.63 billion and adjusted profits of $2.44 a share—but there seems to be widespread agreement on the Street that even those numbers are too high.
For the August quarter, the Street has been looking for $9.1 billion of revenue and non-GAAP profits of $2.62 a share.
In a research note previewing the results, New Street Research analyst Pierre Ferragu cautioned that “consumer weakness may cause near-term headwinds” for the stock, but said he thinks the down cycle will be shallow. He noted that memory-chip companies are making only limited additions to capacity, saying he sees no signs of overcapacity emerging.
Ferragu advises buying the stock to take advantage of recent weakness. Micron shares were marginally lower at $55.96 on Thursday, for a loss of about 40% so far this year.
Citi analyst Christopher Danely said in his own preview that hedge fund investors expect Micron to guide down estimates for the August quarter. The most important part of the conference call to discuss the results will be management’s commentary on end-market demand, “given DRAM has been a leading indicator of demand trends in broader semiconductors,” he wrote.
Danely agrees with the consensus view that Micron is likely to “miss and guide lower,” but he nonetheless maintained his Buy rating and $85 target price.
Danely says the stock isn’t likely to react much even to an earnings miss. “We expect muted reaction post earnings given the DRAM market is in a tailspin but Micron stock is close to trough valuation,” he wrote.
Write to Eric J. Savitz at [email protected]
