Micron Poised to Report Nice Outcomes, however the Outlook Issues Extra


Reminiscence chip producer Micron Know-how (NASDAQ: MU) will report its fiscal fourth-quarter outcomes right now after the market closes. The inventory has been hammered in current months as considerations about reminiscence oversupply started to proliferate. The corporate ought to nonetheless produce near-record outcomes for the fourth quarter, however earnings might begin to fall subsequent yr if reminiscence chip costs do not maintain up.

What occurred final time

Whereas common promoting costs for Micron’s NAND chips dipped within the third quarter, DRAM costs rose by greater than 30% yr over yr. This sturdy DRAM pricing together with double-digit gross sales quantity progress for each kinds of reminiscence chips helped Micron surpass analyst expectations.


Q3 2018

Yr-Over-Yr Change

In comparison with Common Analyst Estimate 


$7.80 billion


Beat by $50 million

Non-GAAP earnings per share



Beat by $0.03

Information supply: Micron.

A Micron solid-state drive.

Picture supply: Micron.

What analysts expect

For Micron’s fiscal fourth quarter, analysts expect Micron’s sturdy progress to proceed:


Common Analyst Estimate

Yr-Over-Yr Change


$8.25 billion


Non-GAAP earnings per share



Information supply: Yahoo! Finance.

A slew of downgrades

Whereas analysts are optimistic about Micron’s fourth quarter, many have began to slash their worth targets on the inventory attributable to fears of reminiscence chip oversupply. Micron has already began to really feel NAND worth declines, and DRAM worth declines could possibly be within the playing cards for 2019. Micron inventory has tumbled round 25% from its current excessive, partly attributable to these analyst downgrades:

  • Aug. 9: Morgan Stanley lowered its score on the whole semiconductor trade to cautious. MS is anxious about rising chip-inventory ranges and indicators of the market overheating.
  • Aug. 15: Wells Fargo maintains an outperform score on Micron inventory, however lowered its worth goal from $70 to $63. The financial institution continues to be optimistic, although, and analyst Aaron Rakers believes the valuation is engaging.
  • Sept. 6: Baird eliminated Micron as a high semiconductor large-cap thought whereas slashing its worth goal from $100 to $75. Baird analyst Tristan Gerra pointed to NAND oversupply, peaking gross margins, and the prospect of DRAM worth declines in 2019.
  • Sept. 11: RBC Capital dropped its worth goal on Micron inventory from $83 to $70 in anticipation of headwinds from the reminiscence cycle. Analyst Amit Daryanani expects DRAM costs to weaken subsequent yr.
  • Sept. 12: Goldman Sachs knocked down its score on Micron inventory from purchase to impartial. Analyst Mark Delaney sees weak point in NAND and DRAM fundamentals, and he factors out that downturns are sometimes worse than buyers initially count on.
  • Sept. 14: Macquarie lowered its Micron worth goal from $80 to $70.
  • Sept. 17: Deutsche Financial institution dropped its Micron worth goal from $80 to $60 however reiterated a purchase score. The financial institution lowered its 2019 estimates to consider weaker costs for NAND and DRAM chips. Deutsche now predicts earnings per share in 2019 might be 20% decrease than beforehand anticipated.
  • Sept. 17: BMO Capital Markets reiterated a market carry out score however lowered its Micron worth goal to only $45. Analyst Ambrish Srivastava expects downward estimate revisions to proceed as DRAM pricing weakens.

Not everybody grew to become extra detrimental on Micron prior to now few months. Analysts at Financial institution of America Merrill Lynch stored its $100 worth goal on the inventory after current constructive conferences with Micron’s rivals and gear distributors. And hedge fund supervisor David Tepper mentioned he stays “very, very lengthy” Micron on CNBC, citing sturdy long-term demand traits.

Whereas there is not any consensus on how dangerous the subsequent downturn in reminiscence chip costs might be, analysts are beginning to line up behind the view that Micron may have a more durable time subsequent yr.

The outlook is essential

Micron will very seemingly give you spectacular fourth-quarter numbers, however buyers ought to pay extra consideration to what the corporate says about fiscal 2019. Micron was overly optimistic prior to the last downturn in 2016, saying on the finish of 2015 that offer and demand was anticipated to stay balanced the next yr. That turned out to be fully unsuitable.

Micron is once more optimistic right now, announcing a massive $10 billion buyback earlier this yr at what could possibly be the height of this reminiscence chip cycle. If Micron begins to melt its language round 2019 expectations, that may be an indication the corporate is seeing the identical points that the majority analysts are actually seeing.

With Micron shares down a lot over the previous few months, the inventory might swing wildly if Micron’s outlook both misses or beats expectations. Whereas the inventory looks extremely cheap based mostly on present earnings, buyers should not low cost the potential of a steep earnings decline subsequent yr.

Extra From The Motley Idiot

Timothy Green has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure policy.

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