Morgan Stanley notes Micron has 'limited downside,' but challenges lie ahead
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Micron Technology (NASDAQ:MU) recently reported a challenging quarter and issued weak guidance that prompted analysts to worry over a "substantial" correction at the memory chipmaking giant. But investment firm Morgan Stanley noted that since Micron's (MU) shares reacted better than expected, investors could be showing some enthusiasm for the company as it works through its issues.
A team of analysts, led by Joseph Moore, noted that Micron's (MU) book value is now $44 a share, but could climb to $50 a share, which would limit the downside in the stock. However, the analysts noted that they would not be buyers of the stock, given it's likely to be a "challenging" period, resulting in excess inventory.
The Morgan Stanley analysts noted that while Micron's (MU) stock is inexpensive on book value, "it is much more expensive than equipment names" in terms of price to free cash flow. Moore & Co. added that Micron (MU) will have to work through issues such as inflationary pressure, weaker consumer spending and risk appetite, as well as higher capital spending 
In addition, the analysts don't think the Micron's (MU) NAND memory business will have the "same dynamics" next year as inventory builds are lower, and it's likely that the second-half of this year will be harder than previously believed.
"On the NAND side, inventory levels are similarly elevated to DRAM," the analysts said. "It appears that inventory has been resupplied with Micron even commenting last week that NAND inventory levels are now above DRAM," and that prices are likely to fall "significantly." 
In essence, the firm said any profits from NAND are likely to fall to "cycle lows" by the second-quarter of 2023, and essentially wipe out profits from memory.
But even with this in mind, there is "strategic value" to micron (MU) and the analysts believe it could have a similar potential to Western Digital (NASDAQ:WDC), which is currently dealing with an activist investor, as there is a low implied valuation for its memory business.
Micron (MU) shares rose almost 2% Thursday amid a broad rally in semiconductor stocks fueled by upbeat reaction to comments from Samsung Electronics about its expected earnings and sales.