Micron Technology Challenges Remain But Risk-Reward Attractive

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By Sam Boughedda

A Deutsche Bank analyst maintained a Buy rating and a $68 price target on Micron Technology (NASDAQ:) Monday, saying the risk to fundamentals remains, but the risk-reward is attractive.

The analyst stated that the challenging environment continues for the semiconductor manufacturing company, but limiting supply growth should help.

“MU already lowered its F4Q (Aug) guidance and we do not expect much deviation from the revised outlook, although we acknowledge that the demand environment has gotten worse. We expect F1Q (Nov) to remain challenging for MU as inventory adjustments in the supply chain continue, which now seem to have spread to enterprise OEMs and cloud customers,” wrote the analyst.

The Deutsche Bank analyst told investors that the firm’s latest checks suggest ASP erosion remains severe, while bit demand has also slowed as customers are becoming more cautious about the macro environment.

“While the supply-demand imbalance will likely cause inventory days at MU to increase sharply in the near term, we are encouraged that the company is cutting capex (which we estimate to be down ~30% y/y to $8b in FY23), and it appears that utilization is also being cut in the near term, which could have an impact on production output as early as in 1Q CY23,” the analyst explained. “While we believe risks to near term estimates are evident, we, however, believe the stock trading at ~1.1x NTM book value is close to a cyclical trough, and we view the current risk-reward as attractive.”

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