Markets

Micron (MU) 1st Quarter Earnings: What to Expect

Semiconductor giant Micron (MU) is set to report first-quarter fiscal 2018 earnings after the closing bell Tuesday. And the Boise, Idaho-based company, which has been this year’s version of Nvidia (NVDA), has many questions to answer.

Micron shares have been one of the best stories in 2017, skyrocketing more than 97% year to date and making believers out of many doubters who question the sustainability of the memory chip market. Take a look at the chart at the bottom of the article, courtesy of YCharts.

The flash memory specialist has delivered nine straight earnings beats on the back of strong dynamic random access memory (DRAM) and NAND memory prices - those found in portable devices like tablets and MP3 players. In the process, revenue over the past three quarters have crushed even the most-bullish expectations, surging by an average year-over-year growth rate of 80.5%.

But with the shares now approaching 100% returns, compared to 19% rise in the S&P 500 index, there’s be obligatory question of valuation. In particular, how much more runway does the stock have left? And can NAND prices support another strong revenue year in 2018?

It’s for this reason MU stock has cooled off, falling some 13% since November 24, while shedding 6.5% over the past thirty days. For the stock to reverse course, Micron on Tuesday will need to assert confidence that it won’t be tripped up by industry headwinds.

In the quarter that ended November, analysts expect Micron to report earnings of $2.19 per share on revenue of $6.41 billion, marking a 61.5% rise in revenue, while EPS is seen rising almost 600% from 32 cents earned a year ago. The metrics compare to the company’s own guidance for $2.16 per share in earnings on revenue of $6.3 billion. For the full year, ending August 2018, Wall Street is targeting earnings to rise 59% to $7.90 per share, while revenue of $25.09 billion would mark a 23.5% jump.

How Micron performs on these metrics, combined with its 2018 guidance will dictate the course of the stock. Working in its favor, DRAM prices during the third quarter improved by 16% from the second quarter, according to DRAMeXchange, which follows the industry. And based on new forecasts, DRAM prices are expected to climb between 10% to 20% to close out the year, which bodes well for Micron.

These trends support comments made by Ernie Maddock, Micron’s CFO at the Citi 2017 Global Technology Conference in September when he forecasts DRAM and NAND pricing to remain robust for the rest of fiscal year 2017. Maddock, who also forecasts a strong DRAM market for fiscal 2018, received an endorsement last week by MKM Partners analyst Ruben Roy, who cited strong DRAM growth trends and bumped is Micron price target from $52 to $54.

All told, despite the strong returns the stock has already enjoyed, too many positive factors exists to give up on Micron now, especially as the company has hinted at new growth areas such as Data Collection and the Automotive sector. And as I’ve noted previously, when factoring the company’s improved profit margins, driven by strategic cost structure, Micron’s potential value far outweigh any risks with the stock price. As such, I expect the shares to reach $55 to $60 in 2018, delivering 26% returns.

yCharts

yCharts

At the time of publication, Richard Saintvilus help Micron shares.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

Read Richard's Bio