Shares of Micron Technology MU have tumbled over 20% since the start of May on the back of renewed U.S.-China trade war fears. MU’s drop off is worse than its semiconductor industry’s average decline during this stretch.
So, let’s take a look at what investors should expect from Micron’s third quarter fiscal 2019 financial results that are due out on June 25 to help gain a better understanding of where the chip market might be headed over the next few months.
Quick Micron & Industry Overview
Micron is one of the largest makers of DRAM and NAND memory chips. For reference, DRAM stands for dynamic random-access memory and are used in personal computers and servers. Meanwhile, NAND flash memory helps fuel smartphones and solid-state hard drives.
Micron and other industry players currently face numerous headwinds. This includes a significant decline in DRAM and NAND pricing, along with reduced demand from companies like Apple AAPL. Plus, recently heightened trade war fears have caused more uncertainty in the highly connected semiconductor market, where Micron has seen its sales to Chinese firms like Huawei grow in recent years.
On top of that, Micron already reduced its full-year spending plans based on lower-than-projected demand in the historically cyclical semiconductor market. “NAND markets remain oversupplied from the acceleration in bit growth, driven by the industry transition to 64-layered 3D NAND,” CEO Sanjay Mehrotra said on the company’s earnings call last quarter.
As we mentioned at the top, shares of Micron have tumbled recently and closed regular trading Tuesday at $34.84 per share. This marked a 44% downturn compared to MU’s 52-week intraday trading high of $61.85. Shares of fellow semiconductor industry companies such as Intel INTC and Nvidia NVDA have plummeted as well over the last 12 months. Meanwhile, Advanced Micro Devices AMD has been one of the industry’s bright spots, up 104%.
With all this in mind, investors will notice that shares of MU have soared over the last decade, despite experiencing massive price swings in the cyclical chip market.
Moving on, our current Zacks Consensus Estimate calls for Micron’s Q3 fiscal 2019 revenue to tumble 39.4% from $7.8 billion in the year-ago period to $4.72 billion. This would be far worse than last quarter’s 20.5% top-line decline, which also came in below our estimate. Peeking further ahead, the company’s full-year fiscal 2019 revenue is projected to sink by 23.5%. Maybe worse yet, MU’s fiscal 2020 revenue is expected to come in 9% below on current-year estimate.
At the bottom end of the income statement, Micron’s adjusted Q3 EPS figure is projected to plummet nearly 74% from $3.15 per share in the year-ago quarter to $0.82 per share. The firm’s Q4 earnings are projected to sink 79%, with fiscal 2019’s earnings expected to fall by over 47%. And like with its top-line, Micron’s full-year fiscal 2020 earnings are projected to fall 31% below our current dismal 2019 projection.
The earnings estimate revision chart also shows us just how much worse MU’s fiscal 2020 outlook has turn over the last 60 days. This is hardly a bullish sign for Micron’s near-term outlook.
Micron is currently a Zacks Rank #4 (Sell) that holds an “F” grade for Momentum in our Style Scores system. The Boise, Idaho-based company could easily return to long-term growth down the road because it’s unlikely these market conditions remain for years, and we have already touched on how cyclical the broader chip market has been historically.
Yet, despite the likelihood that Micron stock bounces back in the somewhat near future as its DRAM and NAND memory chips continue to help drive technological expansion, it might be best to stay away from MU stock until we see some signs of recovery. Therefore, interested investors should likely wait to think about buying Micron stock until they see how Wall Street reacts to the company’s upcoming quarterly earnings report that is due on June 25.
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