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Micron Technology (MU) Q2 Earnings: What's in the Cards?

Zacks Equity Research

Micron Technology Inc. MU is set to report second-quarter fiscal 2017 results on Mar 23. Last quarter, the company posted a positive earnings surprise of 16.67%. It is worth noting that Micron has outperformed the Zacks Consensus Estimate in all the preceding four quarters with an average positive earnings surprise of 34.60%.

Let us see how things are shaping up for this announcement.

Factors to Consider

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 stock has gained approximately 123.9%, outperforming the Zacks categorized Electronic-Semiconductor industry’s return of just 43.8%.

The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron’s growth. Per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and higher-than-expected demand for PCs, servers and mobiles.

We believe that any increase in prices will have a favorable impact on the company’s top line, the benefit of which is likely to flow down to the bottom line. The benefit from improved pricing was well reflected in the company’s last quarterly results. We anticipate these benefits to reflect in the to-be-reported quarter as well.

Additionally, we are positive about the company’s strategy of enhancing capabilities through acquisitions which are likely to boost its top-line performance.

The acquisition of Inotera in Dec 2016 is estimated to be accretive to Micron’s 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 projects the aforementioned factors to also have a positive impact on its fiscal second-quarter results.

However, after acquiring SanDisk, Western Digital WDC has become a key player in the NAND space, which could increase competition in the industry.

Micron Technology, Inc. Price and EPS Surprise

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

Earnings Whispers

Our proven model does not conclusively show that Micron is likely to beat the Zacks Consensus Estimate in its upcoming release. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Micron is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 77 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Micron sports a Zacks Rank #1. Though a Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Netflix, Inc. NFLX, with an Earnings ESP of +2.70% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

International Business Machines IBM, with an Earnings ESP of +0.43% and a Zacks Rank #3.

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Western Digital Corporation (WDC): Free Stock Analysis Report
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