Micron Stock Comes to a Boil Ahead of Second Quarter Results
Shares of Micron (NASDAQ:MU) bottomed at the end of last year and are now poised for a complete reversal. Market action ahead of the second quarter earnings release suggests that sell-side interest is growing in the face of the expected outperformance. Analysts have lowered the revenue and earnings bar over the past 12 months, and it hit a new low in March.
The latest downward revision comes from Citigroup (NYSE: C), which cut its outlook for higher and lower earnings due to an expected write-down related to inventory. Inventory has been a big issue for the memory chip market for years; the depreciation is not positive for the stock price, but may already be priced in to the stock price. Once it has come, the market can focus on future results and a return to profitability.
Sell-side interest on the rise for Micron
The activity of the analyst is certainly mixed. Marketbeat.com’s consensus rating has been flat for the past 12 months, but the price target is trending lower and has hit new lows this month. The caveat here is that the most recent activity is bullish; the downward pressure on the consensus price target is due to old data coming out of the equation. The 2 most recent analyst reports come from Raymond James and Mizuho, whose stock is rated at Outperform/Buy with a 2 analyst consensus price target of $71. This target is still 7.5% above the current consensus, which still expects an 8% upside from recent action.
Institutional activity is even more bullish. Institutions have been buyers overall for 4 of the past 5 quarters, and their buying activity peaked in the first quarter of 2023, not seen in a year. Institutions purchased $2.42 billion net of shares, or 3.6% of market capitalization. This brings total buys to $5.93 billion net for the 5 quarters, or nearly 9% of current market capitalization, with total ownership up to 78% and growing. This is a significant tailwind for stock prices and will help drive the stock higher, assuming Q2 results are good enough.
What are analysts waiting for? The consensus is that revenue will drop more than 50% to $3.72 billion. Earnings are expected to be negative due to expected writedowns and may even exceed the consensus target. The upshot is that analysts remain bullish on the stock and view the writedowns as supportive of the company’s long-term health.
Citigroup analyst Christopher Donnelly said: “While we expect further declines in estimates, our reasons for being positive on MU remain unchanged – we believe the investment and usage cuts by Micron and Hynix are expected to create a bottom for the DRAM market over the next six months, and MU is trading near minimal valuation,” concluding that the markdowns will help the company clear inventory.
The bottom is for chip stocks
Micron’s sentiment is consistent with the dip in the microchip industry. The results of companies like Advanced Micro Devices (NASDAQ: AMD), NVIDIA (NASDAQ: NVDA)And ONSemi (NASDAQ:ON) demonstrate resilience even if there are year-over-year declines in some end markets. The conclusion is that inventory issues are approaching normalization while a transition to next-generation technology supports current operations. The semiconductor index is bottoming because of this and is about to break out.
Regarding Micron stock, its market echoes the bottom indicated by the SOXX Index (NASDAQ: SOXX). The caveat is that price action is range constrained right now and may remain so even with a strong report. The next big catalyst for stock prices may not arrive until the end of the year, when there will be a real improvement in results.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.