Micron Technology, Inc. (NASDAQ:MU) just released its quarterly report and things are looking bullish. It was overall a positive result, with revenues beating expectations by 2.3% to hit US$4.8b. Micron Technology also reported a statutory profit of US$0.36, which was an impressive 30% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Taking into account the latest results, the consensus forecast from Micron Technology's 29 analysts is for revenues of US$20.1b in 2020, which would reflect a reasonable 2.4% improvement in sales compared to the last 12 months. Statutory earnings per share are forecast to fall 13% to US$1.80 in the same period. Before this earnings report, the analysts had been forecasting revenues of US$20.4b and earnings per share (EPS) of US$2.03 in 2020. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a substantial drop in EPS estimates.
The average price target fell 7.9% to US$60.78, with reduced earnings forecasts clearly tied to a lower valuation estimate. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. There are some variant perceptions on Micron Technology, with the most bullish analyst valuing it at US$100.00 and the most bearish at US$38.00 per share. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. As a result it might not be a great idea to make decisions based on the consensus price target, which is after all just an average of this wide range of estimates.
Of course, another way to look at these forecasts is to place them into context against the industry itself. We would highlight that Micron Technology's revenue growth is expected to slow, with forecast 2.4% increase next year well below the historical 14%p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 8.0% per year. Factoring in the forecast slowdown in growth, it seems obvious that Micron Technology is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Micron Technology's revenues are expected to perform worse than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Micron Technology's future valuation.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have forecasts for Micron Technology going out to 2022, and you can see them free on our platform here.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Micron Technology that you need to be mindful of.
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