Micron Technology: A Reversal Is Imminent

Key Points

• Micron had a better-than-expected quarter and issued improved guidance. 
• The analysts are responding favorably and are raising price targets. 
• The price pullback is setting up a solid rebound that could be worth more than 15%. 

Micron Technologies NASDAQ: MU has been suffering through an inventory correction that has yet to run its course, but a reversal in share prices is imminent. The Q3 results, as bad as they were, were better than expected and point to stabilization within the market. The bad times aren’t over, but the depth of the correction wasn’t as bad as feared, and YOY growth should return within the next few quarters. 

The analysts reacted favorably to the news and have begun to raise their price targets. Marketbeat.com picked up 5 revisions immediately after the release, including 5 price target increases and 1 upgrade. The upgrade is from Piper Sandler from Underweight to Neutral with a target of $70.

That’s the lowest new target and slightly below the consensus estimate, but it still assumes some upside for the market. The consensus is still down compared to last year but is trending higher compared to last quarter and last month. If this trend continues, the market should be able to break above the $70 level and move into the upper half of its long-term trading range. 

Micron Results Were Better Than Expected … 

Micron’s results are better than expected, but 200 basis points of outperformance are little consolation in the face of a 56.6% YOY decline. The decline is due to weakness in all segments due to inventory resets and write-offs intended to help normalize the market. The good news is that margins were also better than expected, leaving the bottom line results ahead of consensus and strong relative to the top line. 

The company reported $1.43 in adjusted losses, which is $0.14 better than expected but down significantly compared to last year’s $2.50 profit. Likewise, the guidance is slightly better than expected but calls for a significant decline in revenue and an adjusted loss that brackets consensus.

The takeaway is that Micron’s news is good, and the outlook has brightened, but relative to historically poor levels, new headwinds have emerged. The recent ruling from China’s Cyberspace Administration and restrictions on US imports hurt the outlook. 

Micron will weather the times and likely come out ahead, but it may take time for the stock to recover fully. The company’s cash position remains solid, but it is shrinking while debt ballooned on a YOY basis. Long-term debt is nearly double compared to last year and will weigh on the balance sheet and profitability over the next few quarters. 

The Market Tide Is Rising In Micron 

As tepid and mixed as the results and the outlook, the market tide is rising for Micron. Not only are the analysts still supportive with a Moderate Buy rating and rising price target, but the institutions are buying it too. The institutions have bought on balance for 3 consecutive quarters at a rate of 1.75:1 and own more than 80% of the shares. 

The price action in MU shares is mixed post-release. The initial reaction was to move higher, but profit-takers and naysayers stepped in to cap the gains. The market is now retreating to solid support levels near the short-term moving average, where the retreat may be halted. If not, this market could retreat to $60 or lower before it regains traction.

In that event, a rebound to the $70 level and the upper end of the long-term trading range would be worth more than 15%.