Micron Technology's (MU) forecast for a memory demand slowdown is prompting downgrades and price target trimming on Wall Street Wednesday morning.
Shares of the Boise, Idaho-based semiconductor company opened down nearly 8% after forecasting a descent from a cyclical peak in memory demand in its earnings before paring back their declines in morning hours.
"Micron is confident that demand will reaccelerate in [the second half of 2019] and that it can navigate through this period of inventory work own, however, we are concerned that demand conditions could worsen further and place further pressure on margins," Needham & Co. analyst Rajvindra Gill wrote on Wednesday. "While we are hesitant about downgrading at this valuation level, we believe the overall demand environment will remain murky for at least the next six months and therefore we move to the sidelines."
Gill explained that the forecast has essentially left many with no choice but to downgrade, moving his rating to "Hold" from "Buy."
According to FactSet, four analysts publishing research on Wednesday downgraded the stock while a staggering 16 analysts cut their price targets.
"Our recent memory checks have indicated very poor demand with low visibility into the first half of 2019," Keybanc analyst Weston Twigg explained in his own target cut. "We lowered our Micron estimates last week, however MU painted a picture even worse than we expected. It believes its cloud customers could continue to draw down inventory for a couple more quarters; [while] PC, GPU, high-end mobile, and cloud segments continue to soften...and MU will likely grow its own inventory, adding future risk."
Twigg trimmed his price target to just $45 per share from $61.
To be sure, despite the distressing demand forecast and widespread price slashing, the reception was not entirely negative. Many analysts, including Twigg, maintained "Buy" ratings despite a tempered outlook.
The company has reined in its capital expenditures and highlighted a share buyback program that should help buoy shareholders through a cyclical downturn for memory.
"We're in very good shape relative to where our target at liquidity would be," CFO David Zinsner told analysts. "I would expect us to continue to be good buyers of the stock, so to speak, through the next 3 quarters, and contribute a high portion of our free cash flow in the form of a buyback."
The buyback could sustain investors into the second half of 2019, wherein management has forecasted a stability in DRAM and NAND pricing to return.
"Patient investors could be rewarded," Twigg noted.
Shares have bounced from their lows in Wednesday morning's trading already amid some technical support, but the long recovery ahead makes it hard to justify buying.
"While MU is taking steps to adjust capacity their over-arching belief is the correction is due to supply issues," RBC analyst Amit Daryanani wrote. "We see a real possibility there is a demand issue mid-2019 needing further correction."
Given that possibility, investors might want to wait and see what the trajectory for semiconductor stocks like Micron might be into year-end before trying to buy a bottom so soon.