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Micron (MU) Stock Dips Ahead of Q4 Earnings: What to Watch

Benjamin Rains
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Micron (MU) Stock Dips Ahead of Q4 Earnings: What to Watch

Shares of Micron (MU) dipped 0.60% during regular trading hours Wednesday, one day before the firm is set to release its fourth-quarter financial results. So, let's see what investors should expect from the recently-struggling semiconductor company's Q4 earnings results.

Shares of Micron MU dipped 0.60% during regular trading hours Wednesday, one day before the firm is set to release its fourth-quarter financial results. So, let’s see what investors should expect from the recently-struggling semiconductor company’s Q4 earnings results.

Overview

The escalating trade war between the U.S. and China has made some Micron investors nervous. Worries about the firm’s pricing and general headwinds in the semiconductor memory space have popped up more recently. Plus, Deutsche Bank DB and BMO Capital Markets analysts lowered their 52-week price targets for Micron on Monday. “While the investment community has been in general wary about NAND pricing for some time, it is the weakness in DRAM pricing, which we believe has caught investors by surprise," BMO’s Ambrish Srivastava wrote in a note to clients. "We believe downward estimate revisions for Micron are just beginning. Our estimates remain below those of consensus."

With that said, Micron announced in August plans to invest $3 billion in its Virginia plant by 2030 to increase memory production. Micron also hopes to lift its overall capital expenditure into the low 30s as a percentage of revenue over the long haul to help it catch up to rivals’ spending as chips become smaller, and often more expensive and complex to make.

Micron had seen its stock price soar for a roughly two and a half year stretch. However, shares of MU have cooled down over the last year and have been outpaced by Nvidia NVDA and Advanced Micro Devices AMD.

Outlook

Despite its recent decline, our current Zacks Consensus Estimate is calling for Micron’s fiscal Q4 revenues to climb by 34.41% to reach $8.25 billion. At the other end of the income statement, Micron’s adjusted quarterly earnings are projected to soar 63.86% to touch $3.31per share.

These are strong projections, but we still need to know how likely it is that Micron tops our quarterly earnings estimate. Luckily, we can turn to our exclusive Earnings ESP figure to help us find out. Zacks Earnings ESP (Expected Surprise Prediction) compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter. The Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

In contrast, a stock with a Zacks Rank #3 (Hold) or worse, coupled with a negative Earnings ESP, is one that we typically want to avoid during earnings season.

Micron is currently a Zacks Rank #4 (Sell) and sports an Earnings ESP of -0.16%. Therefore, our model suggests that Micron could fall short of our quarterly earnings estimate. MU has topped our quarterly earnings estimates in the trailing five periods. But these beats have not always helped Micron stock climb immediately following its quarterly earnings release.

Micron is scheduled to release its fiscal Q4 2018 financial results after the market closes on Thursday, September 20.

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