Predicting Micron Technology's Position in the Next 12 Months
Micron Technology, a leading global manufacturer of memory and storage solutions, is navigating through challenging times as it reduces output by up to 20% as part of the industry's efforts to achieve a demand/supply balance. Despite the current difficulties, analysts predict a solid year for Micron in fiscal 2025, with a robust outlook for the company's future.
Strong Projections for Fiscal 2025
Micron has updated its fourth-quarter guidance for fiscal 2024, anticipating revenue of $11.2 billion ± $100 million, non-GAAP gross margins of 44.5% ± 0.5%, and non-GAAP EPS of $2.85 ± $0.07. These figures reflect improved DRAM pricing and strong execution, setting the stage for a promising fiscal 2025.
According to Zacks estimates, fiscal 2025 total sales are expected to increase by 47% to $36.91 billion from $25.11 billion in fiscal 2024. EPS is forecasted to skyrocket over 500% to $8.04 per share in 2025 from $1.30 in 2024. The momentum is set to continue in fiscal 2026 with EPS projected to rise another 62% to $13.05.
Bullish Analyst Sentiment
Analysts are increasingly bullish on Micron. The average price target has risen, with JPMorgan raising its target from $165 to $185 due to stronger DRAM pricing. The average analyst rating is a "Strong Buy," and consensus 12-month price targets are around $152.75, implying ~30% upside from recent prices.
Micron trades at a reasonable valuation given its growth outlook, with a forward P/E of approximately 9.8x and a forward sales multiple of 3.5x, both below the S&P 500 average, supporting the positive sentiment and potential for further gains.
Growth Drivers
Growth drivers for Micron include sustained demand in DRAM, AI infrastructure-related memory products, and overall strong execution, which are driving both revenue and margin expansion.
The Road to Recovery
The demand for memory chips has weakened due to a drop in personal computer (PC) and smartphone sales, as well as a slowdown in demand for memory chips deployed in servers and graphics cards. However, PC sales are expected to rebound in 2024, while smartphone sales are expected to gather momentum starting from the second half of 2023.
Micron Technology's CEO, Sanjay Mehrotra, expects customer inventory to improve and reduce to relatively healthy levels by mid-2023. As demand begins to pick up and supply is tightened, the steep price declines in the memory industry should diminish.
Despite the current challenges, Micron anticipates an improvement in revenue in the fiscal second half of 2023 compared to the first half. The company is expected to turn in a highly improved performance in fiscal 2024, with analysts forecasting a 42% increase in revenue and a return to profitability.
The Road Ahead
Although the memory industry is currently facing oversupply issues, causing the price of dynamic random access memory (DRAM) chips to decline, there are signs of improvement. Analysts forecast a 42% drop in Micron's revenue for the full fiscal year, to $17.9 billion, and an adjusted loss of $0.10 per share, compared to last fiscal year's earnings of $8.35 per share.
However, Micron's guidance suggests that things are about to get worse before they start looking up later in 2023. The company's guidance for the current quarter suggests an adjusted gross margin of just 8.5%, down nearly 40 percentage points as compared to the year-ago period. The company's adjusted gross margin fell to 22.9% in the fiscal first quarter, down from 47% in the prior-year quarter.
In conclusion, Micron Technology's outlook for fiscal 2024 transitioning into 2025 and beyond is robust, highlighted by substantial revenue growth, a sharp increase in earnings per share driven by strong DRAM pricing, and a solid valuation that has attracted bullish analyst ratings and increased price targets. However, the company is currently facing challenges due to oversupply and weak demand, which are expected to improve in the second half of 2023.
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