Investing 22-12-2022 01:05 17 Views

Is Micron stock a ‘buy’ despite weak guidance?

Shares of Micron Technology Inc (NASDAQ: MU) are trading down in extended hours after the chipmaker reported disappointing results for its fiscal first quarter on lower demand and elevated inventories at customers.

Micron’s guidance for the second quarter

Investors are also punishing its future guidance that came in well below the Street estimates.

Micron now expects its revenue to crash over 50% in the current quarter to $3.8 billion (give or take $200 million). In comparison, analysts had called $3.92 billion. Its forecast for a per-share loss of 72 cents to 52 cents also came in worse than 32 cents that experts had anticipated.

According to CEO Sanjay Mehrotra, the inventories side of the equation will improve in the back half of 2023. Nonetheless, he said profitability will remain challenged in the coming year.

Should you buy Micron stock now?

On the plus side, Micron revealed plans of lowering its headcount by 10%. It is also bailing on stock repurchase, bonuses, and productivity programmes for 2023. The said restructuring will result in $30 million worth of additional costs in its second financial quarter.

Shares of the memory-chip specialist are now trading at half the price at which they started the year. Despite all the doom and gloom, Wedbush Securities’ Matt Bryson, on CNBC’s “Closing Bell: Overtime” said it’s worth buying Micron stock at current levels.

The read through is that things are getting better. I think Micron is a place to be. You have this valuation bottom that’s not related to the cycle. Book value is in the mid-40s. So, hopefully, you just don’t have a lot of downside.

His outperform rating on the tech stock comes with a price target of $65 that suggests about a 30% upside from here.

Notable figures in Micron’s Q1 earnings report

Swung to a net loss of $195 million or 18 cents a share That compared to $2.30 billion of net income last year Adjusted per-share loss was 4 cents as per the press release Revenue tanked 47% year-over-year to $4.09 billion Consensus was a cent of loss on $4.10 billion revenue Ended the quarter with a negative FCF of $1.53 billions

Micron expects to spend less moving forward

Micron now expects a lower $7.0 billion to $7.50 billion of capital expenditures in 2023 as spending on wafer fabrication equipment is trimmed by more than 50%. Wafer fab expenditures will be further down in fiscal 2024, it added.

In October, the Nasdaq-listed firm had revealed plans of spending $100 billion to set up the largest U.S. chip factory ever (read more). Micron stock is now back at the price last seen in the second half of 2020. According to Wedbush’s Bryson:

You can make the argument that Micron’s a much better company than it was four, five, six years ago. They’re the cost leaders in DRAM, they have a great NAND product, which historically wasn’t the case. They have a better balance sheet.

The Boise-headquartered firm itself forecasts strong profitability as well once it’s pull out of this downturn.

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