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Micron Technology (MU) to Post Q4 Earnings: What's in Store?

Zacks Equity Research

Micron Technology Inc. MU is set to report fourth-quarter fiscal 2019 results on Sep 26.

Notably, the company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 10.3%.

In the last reported quarter, the company’s non-GAAP earnings of $1.05 per share outpaced the Zacks Consensus Estimate of 75 cents but declined from the year-ago quarter’s figure of $3.15.

Moreover, revenues dropped 33% on a year-over-year basis to $4.80 billion but exceeded the Zacks Consensus Estimate of $4.66 billion.

The year-over-year revenue decline was due to industry oversupply and higher-than-expected fall in DRAM and NAND pricing. Moreover, restriction on sales to Huawei negatively impacted the company’s DRAM and NAND revenues.

Micron Technology, Inc. Price and EPS Surprise

Micron Technology, Inc. Price and EPS Surprise

Micron Technology, Inc. price-eps-surprise | Micron Technology, Inc. Quote

Estimates and Guidance for Q4

Micron projected revenues for fourth-quarter fiscal 2019 between $4.3 billion and $4.7 billion.

The Zacks Consensus Estimate is currently pegged at $4.51 billion, suggesting a decline of almost 46.51% from the year-ago reported figure.

The company envisions non-GAAP earnings to be roughly within 38-52 cents per share.

The consensus mark for earnings currently stands at 48 cents, indicating a plunge of 86.4% from the prior-year reported number.

Factors at Play

Micron is witnessing progress in customer inventory adjustments in most of its end-markets, making it anticipate bit demand for DRAM to resume healthy year-over-year growth from the fiscal fourth quarter onward. The company anticipates a strong uptick in DRAM bit shipments for the cloud, graphics and PC markets in the fiscal fourth quarter and thereafter.

In the automotive space, while slowdown in global auto sales is a woe, rising demand for in-vehicle infotainment and advanced driver assistance systems is likely to drive content growth at a steady pace.

Despite challenges, Micron’s focus on increasing the mix of high-value solutions in its portfolio is a tailwind. We also expect strong growth in managed NAND products to leave a positive impact on its Mobile Business Unit revenues in the fiscal fourth quarter.

Moreover, in the computing and networking business unit, normalized customer inventory levels — particularly in graphics and client — are expected to expand shipment volume in the to-be-reported quarter.

However, Micron’s overexposure in China makes the Sino-U.S. trade war a major overhang on the company. Moreover, starting mid-May, the company suspended its chip shipments to Huawei, a major customer, in response to the export ban imposed by the U.S. government. Even though the company has resumed shipment of select products to Huawei, the considerably lower revenues coming from such a sizeable customer are likely to remain a headwind on the to-be-reported quarter’s results.

Moreover, there is a glut in the market with surplus supply due to the industry’s transition from 2D NAND production to 3D NAND. Moreover, even though NAND bit demand is inversely related to price declines, NAND shipment growth in the fiscal fourth quarter is likely to be limited due to the ongoing transition of the SSD portfolio.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has maximum chances of beating estimates. Meanwhile, the Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Micron has a Zacks Rank #2 and an Earnings ESP of 7.64%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Stocks With Favorable Combination

Here are a few stocks worth considering as our model shows that these have the perfect mix of elements to beat on earnings in the upcoming releases:

Perficient, Inc. PRFT has an Earnings ESP of +2.58% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International, Inc. CACI has an Earnings ESP of +2.03% and a Zacks Rank #3.

Infosys Limited INFY has an Earnings ESP of +2.44% and a Zacks Rank of 3.

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