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Micron (MU) to Report Q3 Earnings: What's in the Offing?

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Micron Technology Inc. MU is set to report third-quarter fiscal 2018 results on Jun 20. The question lingering in investors’ minds is whether or not this memory chip maker will be able to continue its impressive performance in the quarter.

Notably, Micron has delivered positive earnings surprises for 10 straight quarters. Over the trailing four quarters, the company delivered an average positive surprise of 8%. So, let’s see how things are shaping up prior to this announcement.

As long as memory chip prices and demand continue to rise, Micron is likely to keep benefiting. The ongoing investigation by the Chinese government on allegations that Micron, along with Samsung and SK Hynix, indulged in fixing memory prices, is unlikely to conclude any time soon. This lowers the possibility of any negative impact on demand and prices in the near term.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Micron is likely to beat earnings estimates this quarter. Per our model, a stock with a positive Earnings ESP, and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold), has higher chances of beating estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Micron currently sports a Zacks Rank #1 but has an Earnings ESP of +0.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.

However, the stock is likely to register massive year-over-year growth on both the counts, i.e. revenues and earnings per share. The Zacks Consensus Estimate for the fiscal third-quarter’s earnings is pegged at $3.14, which is 93.8% higher than the year-ago quarter’s reported earnings of $1.62. Additionally, analysts polled by Zacks project revenues of roughly $7.70 billion, up 38.3% from the prior-year quarter tally.

Micron Technology, Inc. Price and EPS Surprise

Micron Technology, Inc. Price and EPS Surprise | Micron Technology, Inc. Quote


Let’s see what’s driving this overwhelming expectation.

DRAMs to Continue Driving Revenues

Micron has been the key beneficiary of the upswing in DRAM prices and strong demand which was triggered in the second half of calendar-year 2016. DRAM, which is one of Micron’s biggest revenue contributing segment (71% of 2Q18 revenues), is likely to deliver better numbers, given a supply shortage and increasing adoption of Artificial Intelligence (AI) at datacenters. This should further drive demand for DRAMs. Notably, AI-enabled servers require five to six times the capacity of regular DRAMs compared to standard cloud servers.

Going ahead, rising demand for DRAMs from autonomous vehicle manufacturers is expected to have aided the company’s to-be-reported quarterly results. Self-driving vehicles need to make real-time decisions by analyzing large amounts of data, which necessitates the use of high-performance DRAMs.

Declining NAND Prices to Partially Mute Top-Line Growth

In the last fiscal, the company witnessed impressive growth in NAND revenues due to the massive demand-supply gap which escalated chip prices. Nonetheless, we expect this segment’s growth rate to have remained moderate in the fiscal third quarter as the supply-demand gap has narrowed down significantly, according to various research firms, which is affecting chip prices adversely.

Notably, in the fiscal second quarter, Micron witnessed a low-double-digit rise in bit shipments, while average selling price (ASP) declined in the mid-teens range. Therefore, looking at the current scenario, we believe decline in ASP will have negatively impacted the company’s NAND revenues and margins, and somewhat offset the benefits from improved demand and prices for DRAM products.

Some Stocks With Favorable Combinations

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Seagate Technology Plc STX has an Earnings ESP of +0.77% and flaunts a Zacks Rank of 1.

Juniper Networks, Inc. JNPR has an Earnings ESP of +3.54% and carries a Zacks Rank of 3.

eBay Inc. EBAY has an Earnings ESP of +0.78% and holds a Zacks Rank of 3.

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