Micron Technology (NASDAQ: NASDAQ:MU) experienced a 3% decline in stock value following remarks from Morgan Stanley (NYSE:MS) regarding the company's performance outlook.
The financial institution's analysis suggests that while Micron has maintained stable price negotiations and has seen no impact on price despite high producer inventories and preemptive purchasing by OEMs, the volume remains weak.
The situation mirrors the first half of 2024, which initially was a positive driver but now seems to be affecting investor sentiment.
The analysts at Morgan Stanley noted that their equal-weight (EW) rating for Micron is largely influenced by the company's valuation, which they consider high.
Despite near-term fundamentals showing mild improvement, they expressed difficulty in justifying Micron's current valuation. They emphasized that their projected earnings per share (EPS) of $3.7 for the year would result in minimal free cash flow.
In March, Morgan Stanley had highlighted concerns about market oversupply, with producer inventories at all-time highs.
Micron, however, had managed to uphold price increases, buoyed by the expectation of future supply issues. This strategy continues, with year-over-year price increases potentially slowing down in the fourth quarter, but sequential improvements appear satisfactory.
Despite a negative bias due to the valuation concerns and the challenge of justifying it based on traditional memory analysis, Morgan Stanley had previously upgraded Micron's stock to EW when it was near its high.
In other recent news, Raymond James reduced its price target to $125 while maintaining an Outperform rating, citing slower near-term growth in non-HBM DRAM and NAND markets. Mizuho Securities adjusted its price target to $140, despite anticipating significant growth in the High Bandwidth (NASDAQ:BAND) Memory (HBM) market due to advancements in artificial intelligence. Susquehanna maintained a Positive rating but reduced the price target to $175, factoring in Micron's recent update on their November quarter DRAM and NAND bit shipments.
Wolfe Research held its price target steady at $200, highlighting the potential growth driven by Micron's High Bandwidth Memory 3E (HBM3E) products.
Micron has recently resumed its stock buyback program, signaling improved market conditions. The company has also unveiled its PCIe Gen6 solid-state drive (SSD) technology and started shipping its ninth-generation (G9) triple-level cell (TLC) NAND solid-state drives (SSDs), marking an industry first.
Furthermore, Micron ordered the "High NA" tool in collaboration with ASML (AS:ASML), promising advancements in computer chip manufacturing. However, potential new restrictions by the United States government could limit China's ability to procure advanced artificial intelligence memory chips, which could impact Micron.
InvestingPro Insights
In light of Micron Technology's recent stock performance and Morgan Stanley's analysis, real-time data and insights from InvestingPro can offer additional context for investors. The company's market capitalization stands at $101.15 billion, indicating a significant presence in the semiconductor sector. Despite a negative P/E ratio of -65.01, reflecting challenges in profitability over the last twelve months, Micron has shown a notable revenue growth of 17.6% in the same period. This suggests that while the company may currently be facing earnings pressures, its sales engine continues to expand.
InvestingPro Tips highlight that Micron has managed to raise its dividend for three consecutive years, showcasing a commitment to returning value to shareholders even in tough times. Additionally, analysts expect sales growth in the current year, hinting at potential recovery and a brighter outlook ahead. These insights, drawn from the extensive list of over 10 additional tips available on InvestingPro, can help investors gauge the balance between Micron's growth prospects and the current valuation concerns raised by Morgan Stanley.
With the next earnings date set for September 25, 2024, and a fair value estimate of $153 by analysts compared to the InvestingPro fair value of $84.66, investors will be closely watching to see if the company can exceed expectations and provide a clearer path to profitability. As Micron continues to navigate the semiconductor industry landscape, these InvestingPro metrics and tips serve as valuable tools for investors looking to make informed decisions.
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