Micron rises as Wells Fargo cuts estimates, but firm stays positive into Q3 earnings
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Micron Technology (NASDAQ:MU) shares rose on Thursday even as investment firm Wells Fargo cut estimates ahead of the semiconductor company's third-quarter results next week.
Analyst Aaron Rakers, who still rates Micron (MU) shares overweight with a $115 price target, lowered third-quarter estimates to $8.523B in revenue and $2.37 in earnings per share, down from a prior outlook of $8.75B and $2.54 per share, respectively. The company has guided between $8.5B and $8.9B in revenue and earnings per share between $2.36 and $2.56.
Despite the cut, which is a result of data points turning more negative, Rakers said the positive outlook remains due to the fact that memory will "play an increasingly important role in core-to-edge compute," along with Micron's (MU) competitive positioning and execution being able to support earnings in a down cycle and the company's strong balance sheet and capital return program.
"We continue to see [Micron] as a $8-$9/[share] thru-cycle EPS story," Rakes continued. "[With] our opinion that forward [estimate] reductions are expected, we think [Micron] shares trading at a [less than] 1.5x tangible book value presents a positive risk/reward."
Micron (MU) shares gained slightly less than 1.5% to $57.05 in premarket trading on Thursday.
In addition, Rakers noted that weakness amongst consumers, especially PCs and smartphones, is now "well known," with the focus on how enterprises are spending, particularly in the data center.
Micron (MU) saw roughly 55% of its 2021 revenue from consumer spending.
"More importantly / incrementally, we expect investors to scrutinize Micron's updates thoughts / outlook for data center demand (data center + graphics = ~30% of MU's F2021 rev.) with a focus on updated thoughts on hyperscale cloud inventory levels, server supply chain constraints, impact of ongoing delays in Intel's next-gen Sapphire Rapids Xeon-SP server CPUs, etc.," Rakers added.
Other tidbits Wells Fargo will be looking for are Micron's (MU) thoughts on long-term agreement availability and durability amid broader macro weakness, along with the company's "forward looking thoughts" on industry discipline and any updates on its share buyback program, which had almost $5.3B left as of the end of the second quarter.
On Tuesday, investment firm Goldman Sachs maintained its buy rating on Micron (MU), citing a "favorable risk/reward," even as the NAND and DRAM markets start to slow down.