Micron Technology stock was dropping early Thursday. The memory-chip company’s margin outlook appears to have surprised the market but that shouldn’t put investors off betting on the stock, according to Wall Street analysts.
Micron
(ticker: MU) shares fell 4.8% in early Thursday trading to $64.95 as the market digested its latest earnings report. The stock was up 36% this year through to Wednesday’s close as many analysts have turned positive on the demand and supply balance for memory chips.
The company reported fiscal-fourth-quarter earnings Wednesday after the market close, issuing guidance of revenue of around $4.4 billion and an adjusted loss around $1.07 a share for the quarter. Analysts had expected revenue of $4.2 billion and a loss of $1.04 a share, according to FactSet.
Micron said it expects a gross margin of around negative 6% for the first quarter of its current fiscal year, plus or minus 2%.
UBS analyst Timothy Arcuri said Micron’s guidance was likely a little worse than the market expected after a number of bullish comments from management at conference appearances. He said it was a surprise Micron wouldn’t commit to returning to positive gross margins as early as the second quarter of its current fiscal year, pushing that milestone to the second half of the year.
However, Arcuri argued that the upturn looks to be under way and 2025 should be a record year for memory industry revenue. He kept a Buy rating and $76 target price on the stock.
“We think the path of least resistance is clearly to the upside here as demand, pricing, and profitability are all turning,” Arcuri wrote.
Citi analyst Christopher Danely also said the gross margin outlook took the shine off the results, but he reiterated a Buy rating and $85 target price.
“Temporary gross margin headwinds…should eventually go away, and more importantly—the DRAM upturn has begun which should drive upside to consensus estimates,” Danely wrote.
Micron has been struggling with lower demand for DRAM—or dynamic random-access memory—and NAND chips in its core end markets of PCs, mobile phones, and data centers.
However, aggressive production cuts across the industry are helping improve the demand-supply balance, according to Raymond James analyst Srini Pajjuri. He wrote that a multi-quarter cyclical upturn should begin in the final quarter of 2023.
Pajjuri reiterated an Outperform rating and $76 target price on Micron.
Write to Adam Clark at [email protected]
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