Earnings Outlook: Micron earnings: Bullish sentiment remains on horizon for memory chips

December 16
16:05 2017

Micron Technology Inc. is expected to remain a big beneficiary of commodity memory chip pricing, which has surged in the past year, and investors will be focused on supply and demand issues going into the chip maker’s earnings report.

Micron MU, +0.38%  is scheduled to report results for its November-ending first fiscal quarter on Tuesday after the bell.

Prices of DRAM and NAND memory chips, Micron’s core business, have soared in the past year and prices aren’t expected to pull back soon. DRAM, or dynamic random access memory, is the type of memory commonly used in PCs and servers, and NAND is the flash memory that is used in USB drives and smaller devices such as digital cameras.

In a recent report, IC Insights said not only automotive and internet-of-things applications are driving double-digit year-over-year growth in the integrated circuit market but also the more mature PC and cellphone markets will keep demand high.

Micron shares rallied following Micron’s last earnings report in September, after the company boosted its outlook after topping Wall Street estimates and raised its capital spending forecast, then suffered a pullback in November over near-term concern about memory chip pricing. In October, the company said it planned to retire $ 2.25 billion in debt. and shares also pulled back following an announced secondary offering of shares.

Earnings: Of 24 analysts polled by FactSet, Micron is expected to report consensus earnings of $ 2.19 a share, up from the $ 1.74 a share consensus when the quarter began. Micron had forecast $ 2.09 to $ 2.23 a share following fourth-quarter earnings. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for an adjusted earnings consensus of $ 2.26 a share.

Revenue: Wall Street expects revenue of $ 6.41 billion, according to a consensus of 27 analysts surveyed by FactSet, up from the $ 5.93 billion expected at the beginning of the quarter. Micron forecast revenue of $ 6.1 billion to $ 6.5 billion. Estimize expects revenue of $ 6.44 billion. Analysts expect DRAM sales to rise 76% to $ 4.23 billion, and NAND sales to rise 54% to $ 2.01 billion.

Stock movement: Of large chip makers, Micron’s stock has been the best performer of the year, surging 94%, and outperforming even gaming and data-center chipset supplier Nvidia Corp. NVDA, +2.73% which is up 79% for the year even following an earlier pullback. In comparison, the PHLX Semiconductor Index SOX, +1.45%  is up 38% for the year, and the Nasdaq Composite Index COMP, +1.17%  is up nearly 29%. Micron shares hit their highest close in 17 years in late November at $ 49.68.

What analysts are saying:

Instinet analyst Romit Shah, who has a buy rating and a $ 50 target price, expressed a bit of caution going into earnings, warning that Micron’s stock could hit a bit of volatility, but any weakness should be seen as an opportunity to acquire more shares. He noted:

Addressing NAND concerns, Mizuho analyst Vijay Rakesh, who has a buy rating and a $ 45 price target, had this to say:

MKM Partners analyst Ruben Roy, who has a buy rating and raised his price target to $ 54 from $ 52 on Thursday, said he expects DRAM demand to remain strong. He noted:

Cowen analyst Karl Ackerman, who has a buy rating and a $ 43 price target, had this to say:

And Susquehanna Financial Group recently chose Micron as their “favored” memory pick for 2018.

Of the 32 analysts surveyed by FactSet, 27 have buy or overweight ratings on the stock and five have a hold rating. On average, analysts have a consensus $ 54.22 price target, nearly 28% above Friday’s closing price.

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