Micron Off 7% on FYQ1 Miss; Bulls See Better Times in ’13
Shares of memory chip maker Micron Technology ( MU ) closed down 47 cents, or almost 7%, at $6.32 after the company last night missed fiscal Q1 revenue and earnings projections, in part because of a sharp drop in DRAM prices and a drop in NAND flash sales volume, but more so because of manufacturing issues that the company claims have now been brought under control. There was at least one downgrade of the stock today, from CLSA Asia-Pacific Research's Ryan Goodman , who cut the shares to Outperform from Buy, with a $7.50 price target, down from $8. Goodman is inclined to believe the DRAM market was part of the problem, and he thinks the stock may have less upside after recent price appreciation: Management blamed the unit miss primarily on manufacturing challenges, which appear to be behind. However, QTD commentary implies flattish DRAM revenue growth for the FQ2, which is surprising given recent ASP trends. We believe mix shift away from higher-margin specialty to commodity DRAM explains some of the weakness and it’s unclear to us if the mix will improve meaningfully in the next couple of quarters. NAND revenue is tracking up slightly, but we see potential risk to ASPs driven by seasonal slowdown in demand. We are lowering our estimates and our PT from $8 to $7.50. The stock remains below book at 0.9x, and we remain positive on industry fundamentals. However, given the recent rally in the stock and our margin concerns, we think the upside is limited. Goodman cut his estimate for calendar 2013 to $8.28 billion in revenue and a 30-cent loss, down from a prior expectation for $8.83 billion and an 8-cent loss. Aside from Goodman, bulls were out in force on the stock today, issuing estimate cuts but maintaining price-target assumptions, and predicting better times to come in 2013. Betsy Van Hees, Wedbush Securities : Reiterates an Outperform rating and an $8 price target. "While FQ1 was a tough quarter for Micron, we believe the worst is likely behind the company. We recommend investors take advantage of any potential weakness in the stock today to build their positions as we believe Micron is poised for a return to profitability in CY 2013 as it benefits from (1) recovery in the DRAM market, (2) favorable NAND supply/demand environment, and (3) improved operational efficiencies from the pending acquisition of Elpida [...] View stabilization in NAND prices and strong demand trends in SSDs as positive read-throughs to SanDisk ( SNDK )." Van Hees cut her fiscal 2013 estimate to $7.87 billion in revenue and a 54-cent net loss per share from a prior $8.05 billion and a 32-cent loss.