Shares of memory chipmaker, Micron Technology Inc. MU has been on the rise since it reported its first-quarter fiscal 2017 results. To some investors, choosing the stock may appear to be a no-brainer because right after an earnings release, a company is almost always on investors’ radar. While better-than-expected results make the stock a good pick, lower-than-expected results dampen investors’ spirit. So, the period following earnings releases is often marked by high market activity.
Shares Marching Higher
Micron reported its quarterly numbers on Dec 21, following which its shares have gained over 13% so far. The company’s adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of 28 cents came ahead of the Zacks Consensus Estimate as well as the year-ago quarter’s figure of 24 cents.
MICRON TECH Price, Consensus and EPS Surprise
MICRON TECH Price, Consensus and EPS Surprise | MICRON TECH Quote
Micron’s revenues in the quarter not only increased 18.5% on a year-over-year basis to $3.970 billion, but also surpassed the Zacks Consensus Estimate of $3.784 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 23%), primarily due to pricing improvement in the DRAM and NAND sales volume. In addition, a 5% increase in DRAM average selling prices (ASP) supported the revenue growth.
An encouraging top- and bottom-line guidance for the second quarter, which was way above the respective Zacks Consensus Estimate, also helped in boosting investors’ confidence about the company’s future prospects.
Upward Estimate Revisions
In the last seven days, the Zacks Consensus Estimate for the second quarter and fiscal 2017 witnessed upward revisions. For the fiscal second quarter, the Zacks Consensus Estimate is currently pegged at 45 cents per share, up 4 cents from the earnings of 41 cents projected seven days ago. Similarly, the Zacks Consensus Estimate for fiscal 2017 is currently pegged at $1.76 cents per share compared with $1.75 projected seven days ago.
Other Driving Factors
Micron offers both DRAM and NAND products. While DRAM chips are the key components in PCs, NAND flash chips are crucial for portable electronic devices. The improving prices for DRAM and NAND chips make us hopeful about the company’s near-term performance. Per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and stronger-than-expected demand for PCs, servers and mobiles.
Furthermore, the company is expected to benefit from strong demand for the NAND flash memory chips, which are used in smartphones and tablets. Driven by new tablet products and greater adoption of solid state drive (SSD), total demand in the NAND flash memory industry could surpass manufacturing capacity, leading to a periodic shortage and higher pricing in the near term.
It should be noted that Micron has been expanding in SSD storage, due to the decline in the PC market. Notably, SSDs are faster and more energy efficient than traditional hard drives. These are also used in servers due to lower latency, thereby facilitating faster response to real-time applications.
In an effort to expand its SSD product portfolio, last year, the company partnered with Seagate Technology plc STX, to supply a significant portion of the latter’s NAND requirement. In return, Seagate shares its SAS SSD technology with Micron – a key technology – that the latter lacks in the enterprise SSD market. We believe that this deal will expand Micron’s high-value enterprise SSD portfolio.
Additionally, Micron recently completed the acquisition of Inotera. Considering the current market conditions, the company anticipates this buyout to be accretive to its DRAM gross margin, earnings per share and free cash flow.
According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.
The company anticipates the aforementioned factors to also have a positive impact on its second-quarter fiscal 2017 results.
Looking at the improving selling prices for DRAM and strategic initiatives of expanding in the SSD market, we consider that Micron is one such technology stock which would be worthy of remaining in investors’ portfolio.
Notably, the stock has been clocking solid returns over the last six months and has gained approximately 79.1%, outperforming the Zacks categorized Electronics-Semiconductor industry return of 33.3%.
The company currently trades at a forward P/E multiple of 13.2x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 18.1x.The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, lower the P/E of a stock, the better for a value investor.
Hence, we believe that there is still much momentum left in this Zacks Rank #1 (Strong Buy) stock, which is quite evident from its VGM Style Score of “A” and long-term earnings growth rate of 10%.You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has grabbed the spotlight with striking performances on the back of solid earnings results and robust growth projections. Keeping this in mind, we perceive that investing in this stock would yield strong returns in the short term.
A couple of other stocks worth considering in the broader technology sector are Cirrus Logic Inc. CRUS and Amkor Technology Inc. AMKR, both sporting a Zacks Rank #1.
Cirrus Logic has witnessed upward estimate revisions in the last 60 days and surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, with an average positive surprise of 53.68%.
Estimates for Amkor Technology have also moved up in the last 60 days. It surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, with an average positive surprise of 62.50%.
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