Despite the recent volatility, many names in the semiconductor sector have mounted outsized gains since the historic March lows. But not memory giant Micron (MU). Weighed down by macro elements which have resulted in a lack of demand and the loss of a major source of revenue due to the ban on Huawei, MU shares are still in the red for 2020.
Micron will have an opportunity to reverse course when the company releases F4Q earnings after the market closes today. The company has already pointed out what to look out for in a recent business update. Most concerning for investors were projections for the next (November) quarter. Slowing demand and customers’ excess inventory have led Micron to lower revenue forecasts. Wall Street followed by lowering estimates, too.
While Raymond James analyst Chris Caso admits to being “late in cutting numbers,” the analyst has also now reduced November expectations to consensus levels “to reflect what’s now widely expected to be a tough price environment through year-end.”
Caso, therefore, reduced his FY21 nonGAAP EPS estimate from $4.92 to $4.20 and lowered the revenue forecast from $24.762 billion to $23.642 billion.
The 5-star analyst expects the tough economic conditions to continue, and in contrast to expectations of a 2021 rebound in spending, he does not see “a rational expectation why memory suppliers would substantially ramp spending given COVID-19/macro and Huawei uncertainty.”
Where Micron is concerned, Caso argues should prices decline further, the share price could drop to $40 (currently at $51). However, he also points out “macro conditions would have to substantially worsen to put such a scenario on the table.” On the other hand, a recovery scenario could result in the price climbing to near $70, meaning “the risk/reward is favorable, and we would be buyers on weakness.”
Expounding on this, Caro said, “While we are adjusting our near-term expectations to reflect a likely challenging pricing environment, the most important factor that drives our constructive view into 2021 is a capex outlook for the industry that remains constrained, and guidance for lower capex at MU for 2H20. As a result, we believe the supply shortages that had been expected in 2H20 will likely materialize in 2021, which would drive numbers higher with a favorable risk/reward next year.”
All in all, Caso sticks to a Strong Buy rating and $65 price target, which implies a healthy 31% upside from current levels. (To watch Caso’s track record, click here)
Caso’s expectations are roughly aligned with those of his colleagues. Based on 17 Buys, 5 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. The analysts expect shares to climb by 24% over the next 12 months, given the $63.45 average price target. (See Micron stock analysis on TipRanks)
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