This post was originally published on this site
Micron Technology Inc. is being lauded for its foresight for a conservative guidance in the early days of the COVID-19 outbreak, but the chip maker will likely be judged on how it forecasts the rest of the year as it balances out strength from data centers and weaknesses in consumer applications as the pandemic plays out.
Micron MU, +5.93% is scheduled to report fiscal second-quarter earnings after the bell on Wednesday.
Last week, Micron Chief Executive Sanjay Mehrotra said in a letter that the company took early precautions in January to limit the spread of the SARS-CoV-2 coronavirus in its facilities in China and the rest of Asia and expanded those protections as the virus spread worldwide.
“We have also carefully managed raw materials and our supply chain to maintain our manufacturing capabilities and production,” Mehrotra said. “Our global team has shown tremendous strength and solidarity, operating with excellence despite lockdowns and quarantines that challenged staffing, shipments and work schedules.”
Micron specializes in DRAM, or dynamic random access memory, which is the type of memory commonly used in PCs and servers.
What to expect
Earnings: Of the 28 analysts surveyed by FactSet, Micron on average is expected to post adjusted earnings of 37 cents a share, down from the 44 cents a share expected at the beginning of the quarter and well below the $1.71 a share in the year-ago quarter. Micron forecast 29 cents to 41 cents a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for earnings of 38 cents a share.
Revenue: Wall Street expects revenue of $4.67 billion from Micron, according to 27 analysts polled by FactSet. That’s down from the $4.84 billion forecast at the beginning of the quarter, and the $5.84 billion reported in the year-ago quarter. Micron predicted revenue of $4.5 billion to $4.8 billion. Estimize expects revenue of $4.72 billion.
Stock movement: Micron shares have fallen 28% since the company called a “bottom” to its financial performance back in December when it last reported earnings. In comparison, the PHLX Semiconductor Index SOX, +3.36% has declined 26% over that time, while the S&P 500 index SPX, -2.93% has dropped 30% and the tech-heavy Nasdaq Composite Index COMP, -0.27% has fallen 22%.
What analysts are saying
Morgan Stanley analyst Joseph Moore, who is overweight on the stock with a price target of $52.50, said there are several moving parts to Micron going forward, but that he likes the risk-reward profile.
“Not only is pricing good, but our checks show significant strength in cloud demand, driven by high work-from-home demand,” Moore said.
Moore also called Micron’s outlook “appropriately conservative” and said it was “ahead of the curve” when it came to concerns about the impact of COVID-19 when it was still in its early stages.
J.P. Morgan analyst Harlan Sur, who has an overweight rating and a $65 price target, said he expects Micron to guide its May-ending quarter 30% below the Wall Street consensus “on near-term uncertainty and lack of visibility from customers navigating an uncertain demand environment and from continued supply-chain disruptions as a result of COVID-19.”
Analysts surveyed by FactSet currently expect May-ending quarter earnings of 53 cents a share.
“While the full impact of COVID-19, especially on the back half of the year, is not clear, we expect the demand environment to be mixed with continued strength in cloud data center and gaming offset by weaker trends in consumer products such as PCs, smartphones, and autos,” Sur said.
Cowen analyst Karl Ackerman, who has an outperform rating and a $70 price target, also expects a conservative outlook from Micron.
“The supply bottleneck has morphed into a demand challenge, however, and our field work on the smartphone and PC supply chains indicates low visibility for CQ2 production,” Ackermann said. “We expect a conservative and prudent MayQ guide.”
Evercore ISI analyst C.J. Muse, who has an outperform rating and $75 price target, also likes the risk-reward profile of Micron.
“Moving to fundamentals, we continue to think the industry is only adding 7-8% bit production growth in DRAM, which suggests COVID or no COVID, DRAM supply will be tight in 2020,” Muse said.
RBC Capital Markets analyst Mitch Steves, who has an outperform rating and a $55 price target, said he believes the stock is shackled to the fortunes of the S&P 500 for now.
“The one positive will be China demand (likely coming back), but this does not solve demand issues in the United States,” Steves said.
Of the 35 analysts who cover Micron, 28 have overweight ratings, five have hold ratings and two have underweight or sell ratings, along with an average target price of $65.98, according to FactSet data.
