Micron Technology On Watch Ahead Of Earnings

Micron Will Beat Consensus, But By How Much?

Micron Technology (NASDAQ:MU) is slated to report after the closing of trading today. The analysts are expecting a mixed report in which revenue grows double-digits while EPS falls nearly 28%. Based on history there is a very high likelihood Micron will beat on both the top and bottom lines. The question to be answered is by how much and whether this company is a buy.

The average analyst rating is bullish with a heavy bias toward very bullish. Of the 34 current ratings, 18 are Very Bullish while only 9 neutral and 1 bearish. The consensus price target is about 25% above Friday’s close so I am leaning in the direction that this company is in fact a buy.

What To Expect From The Q3 Results

Q3 results are going to be a mixed bag if ever I saw one. Revenue is expected to jump by 11% or more for the quarter with EPS down 27.6%. Looking over the past few years, Micron has a tendency to beat revenue estimates 88% of the time and EPS estimates 100% of the time so there is little reason not to expect the consensus figures to fall. The more-important figures will be the guidance and outlook for the next quarter, the fiscal current quarter, and how they impact the full-year guidance.

The consensus target for this quarter, the fiscal 3rd, is EPS of $0.76 and revenue of $5.31 billion. Add that to the Q1 and Q2 results and that leaves a reasonably low bar for the company to beat in the 4th quarter but that does not guarantee that business will cooperate. If guidance or results indicates the company will not meet the consensus targets for FY 2020 shares of Micron could be in for a correction.

Analysts at Keybanc are not worried, however, they see a growing tailwind for memory-chip makers developing in the second half. According to them, low inventory will underpin demand through the 2021 calendar period supporting business for companies like Micron and Intel (NASDAQ:INTC). Keybanc maintains an Overweight rating on Micron with a price target well above the Wall Street consensus.

Growth And Value

Looking forward, Micron is expected to return to YOY growth next year. The outlook for 2021 is moderate to robust with revenue growth near 17% and EPS closer to 75%. Add to this Micron’s value and the stage is set for a multiple expansion that could lift this stock over the next 12 to 24 months. At today’s prices, MU is trading at roughly 19.5X this year’s earnings but only 11X next. Compared to Intel’s 11X this looks reasonable but others in the group are trading at much higher valuations ranging from Qualcomm’s (NASDAQ:QCOM)15X 2021 EPS to Texas Instruments (NASDAQ:TXN) 25X and NVidia’s 37X.

The Technical Outlook: Well Supported But It Comes Down To Earnings

The technical outlook for this stock is not overly bullish but the chart does look well-supported. After rebounding from the March low price actin moved up to the $44-$48 region where it has met up with the short-term moving average. Since then, price action has been meandering higher with the most current movement to the downside. It looks like support will hold at the $48 level but it may all come down to the Q3 results and outlook for the end of the year.

Assuming the analysts are right in their positioning, and results are as expected (which means better than expected, Micron should produce a healthy beat) stock prices should pop after the report. A move above the $50 would be significant and trigger a weak-buy signal, a move up to and above the $52 level would be a much stronger buy signal. Longer-term, I expect Micron to deliver consistently improving results over the next 4 to 6 quarters with those results-driving share prices up to an above the analyst’s $62 consensus price target.