Why Micron can still ‘shine’ despite its downbeat earnings forecast

Even after delivering a November forecast that was considerably lower than analysts were expecting, Micron Technology Inc. is “setting up as a name to own into 2022,” in the view of one analyst.

Shares of Micron

are off about 1% in Wednesday morning trading following the downbeat outlook, but several analysts came out of Micron’s latest earnings report with optimistic takes on what lies ahead once the memory-chip company gets past short-term issues in the personal-computer market. Micron Chief Executive Sanjay Mehrotra flagged that some PC makers were adjusting their memory and storage purchases given shortages of other components, but the company still expects “record revenue with solid profitability” in the current fiscal year that just began.

“Big picture, all 3 DRAM makers are willing to build inventory and contemplate slowing [capital expenditures], which gives us confidence that this correction will be short-lived and that [supply/demand] will be in balance or tight throughout all of CY22,” wrote Evercore ISI’s C.J. Muse, the analyst who liked Micron’s prospects heading into 2022.

Muse argued that investors will come to favor “names where excess inventory is more easily understood” and where companies have allowed for a “reset” of consensus estimates. “In this environment, look for Micron to shine,” he wrote, while maintaining an outperform rating and $100 price target on Micron’s stock.

Read: The semiconductor shortage is here to stay, but it will affect chip companies differently

Raymond James analyst Chris Caso took a similar view. “Our take is that if the slowdown remains constrained to PC—and if PC doesn’t get worse—we think the DRAM industry can maintain a healthy supply/demand balance,” he wrote. “Given the pullback in the stock, we think that creates a favorable risk/reward,” with Micron shares trading at 7.5 times his new earnings-per-share estimates for fiscal 2022.

Caso has a strong buy rating and $100 target price on the shares.

Rosenblatt Securities analyst Hans Mosesmann wrote that there continues to be “unusually strong demand” for PCs, such that the PC market will “likely see unseasonal trends in 1H22” due to a high number of unfulfilled orders.

“The bear case of PC DRAM prices leading to an overall end of cycle collapse either did not play out or Micron did not get the memo,” he wrote, while reiterating a buy rating and Street-high $165 price target on the shares. “Margins would be collapsing and inventories bloating; they are not.”

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Cowen & Co. analyst Karl Ackerman called the company’s guidance reset “the right medicine required for many on the sidelines,” though he noted that “there are a couple unknowns entering the first half that may not yet fully dispel the bear case.” He kept an outperform rating on the shares and lowered his price target to $80 from $90.

“We could see how some investors might construe the inventory build as a measure to support the company’s pricing strategy,” Ackerman wrote. “Even if this were the case, one could argue MU certainly could hold on to inventory a bit longer given new server platforms in F22 should soak up any excess DRAM bits in stock.”

Micron shares have lost 12% over the past three months, the same time in which the S&P 500

has risen 2%.

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