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Shares of Micron Technology (NASDAQ:MU) are down over 4% after a Morgan Stanley analyst cut the rating to Underweight from Equal-weight with a $56 price target.
The analyst argues that Micron’s guidance for the August quarter failed to “clear the decks.” As a result, he disagrees with the notion that Micron stock is set up for better outcomes following the “conservative” guidance.
“While Micron likely guided conservatively relative to their outlook at the time, the market continues to deteriorate, both volume (the primary reason for the weaker guidance) and pricing,” the analyst further added in a client note.
He especially highlights material volume weakness observed in all markets, including hyperscale.
“Our sense is that this is less about demand and more about inventory, as customers in all markets listened to the substance of Micron’s commentary – that shipments this quarter and next will be well below production, with a large Micron inventory build by year end – and start to release inventory buffer. We have heard from multiple customers that they are taking a more aggressive approach to inventory management in light of this commentary,” the analyst said.
Morgan Stanley also sees signs of price aggression with some competitors offering products at prices that are 20% or lower.
On a more positive note, the analyst says Micron stock is “very inexpensive” on trailing P/E with book value offering protection against the downside. However, Micron shares look “expensive on trough cash flow, peak cash flow, and through cycle cash flow, relative to peers.”
