Micron (MU) is one of the hottest stocks in the market on Thursday, but at least one analyst says sell it.
Shares of the tech stock bounced over 9% at daily highs, bringing the stock above the $44 threshold for the first time since October. Nonetheless, some analysts are calling the day's optimism unwarranted.
"Micron reported weak results and guided well below Consensus due to the memory crash and cut capex. While these are appropriate steps, we believe estimates and the stock should remain under pressure due to the DRAM crash," Citigroup analyst Christopher Danely wrote in a note on Thursday.
He also cut his price target to $30 per share from $35, noting that the trading level of around 1x price to book is "in-line with valuation during the 2016 memory crash and where the stock bottomed in the fourth quarter of 2016."
Danely said that guidance was "dismal" and he expects things will get worst before they get any better if history is to serve as a guideline.
"The DRAM downturn starting in 2014 lasted seven quarters before contract pricing bottomed and the downturn starting in 2011 lasted six quarters before reaching a bottom," he recalled. "These time periods are consistent with the 18-month lag between capacity capex spending and wafer output as DRAM supply cannot be adjusted rapidly to keep pace with demand and macro conditions. We are only two quarters into the current downturn."
As such, the trough could still be a ways away in his view.
Interestingly, while Danely is the only "Sell" rating among the analysts polled by FactSet, many analysts trimmed targets in observation of some of the same obstacles he anticipates.
Stifel analyst Kevin Cassidy cut his price target as the guidance from Micron fell well short of his previous estimates that were well above Street consensus.
Nonetheless, he broke with Danely's prescription and retained his "Buy" rating on the basis of the expected trough come May.
"We have made further downward adjustments to our estimates though we continue to view the May quarter as the trough for Micron's quarterly revenue and earnings," Cassidy advised.
After the earnings release, Wall Street consensus remains a "Buy", though seven analysts are still recommending "Hold" and Citi is sounding the call to sell before it's too late.
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