Micron (NASDAQ:MU) stock is in focus today after Mizuho Securities downgraded shares. Among the negative factors cited by the firm were “slowing […] demand and high inventory,” as well as macroeconomic issues. In addition to MU, Mizuho also downgraded shares of Western Digital (NASDAQ:WDC) stock.
Mizuho analyst Vijay Rakesh downgraded MU stock and WDC stock to “neutral” from “buy.” Both Western Digital and Micron sell memory storage products, servers and hard disk drives. Rakesh believes that demand for the companies’ products among consumers and data centers is slowing. Demand for servers is also declining.
On the supply front, MU and WDC will also see increased competition from Nvidia (NASDAQ:NVDA) and China’s Yangtze Memory Technologies, according to the Mizuho analyst. Rakesh adds that Micron has already acknowledged demand is falling while supply increases.
Given the supply-demand dynamics, Rakesh argues that “weak macro, weak consumer demand, high inventory, and continued supply growth imply more downside risk over the next 4-6 months.” The analyst slashed his price target on MU stock to $56 from $75. He also reduced his price target on WDC stock to $40 from $62 per share.
MU Stock: Bullish Counterpoints
Not all may be bad for MU stock, however. In a note to investors on Sept. 10, UBS wrote that “Micron’s profitability should improve amid firm DRAM pricing and continued cost improvements.” DRAM is a form of flash memory.
Meanwhile, the price-earnings (P/E) ratios of both WDC and MU are much lower than the S&P 500’s current P/E ratio of 19.6 times and mean P/E of roughly 16 times. Micron has a trailing P/E ratio of 6 times while Western Digital has a trailing P/E of about 7.5 times.
As of this writing, MU is down 14% for the past month and 44% year-to-date (YTD). Meanwhile, WDC stock is down 24% in the last month and nearly 45% YTD.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
