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Micron (MU) to Report Q4 Earnings: What's in the Cards?

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Micron Technology Inc. (MU - Free Report) is set to report fourth-quarter fiscal 2018 results on Sep 20.

Notably, the company beat the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average positive surprise of 5.91%.

In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate as well as the guided range. Also, it recorded year-over-year improvement on both counts.

The stellar results were primarily attributable to strong demand across all business and product segments. This, along with proper execution by management, backed the solid performance.

What to Expect in Q4?

For fourth-quarter fiscal 2018, Micron projects revenues in the range of $8-$8.4 billion. The Zacks Consensus Estimate is pegged at $8.22 billion, 33.9% higher than the figure reported in the year-ago quarter.

The company expects non-GAAP earnings per share to be roughly $3.30 (+/- 7 cents). The Zacks Consensus Estimate is also pegged at $3.30, indicating a year-over-year increase of 63.4%.

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Micron is benefiting from robust demand for its high-performance chips in rapidly growing markets like Cloud Computing, Artificial Intelligence (AI), Augmented Reality (AR) and varied application of the Internet of Things (IoT) technology.

Improved pricing of DRAM, which is mainly driven by better product-mix optimization and higher-than-anticipated demand for PCs, servers and mobiles, is a key catalyst. Notably, DRAM generates majority of the company’s revenues. In third-quarter fiscal 2018, it contributed approximately 71%. The trend is likely to continue in the soon-to-be reported quarter.

The company’s cloud server and graphics memory product sales are leading to robust improvement in its computing and networking business unit. Surge in demand for the company’s low power DRAM products and its managed NAND products is a tailwind for its Mobile Business Unit.

Last fiscal, the company witnessed impressive growth in NAND revenues due to the huge demand-supply gap, which led to a steep escalation in chip prices. However, NAND flash pricing is currently on a decline due to oversupply and weaker-than-expected growth in end-market demand.

Therefore, decline in prices will put the company’s NAND revenues and margins under pressure, and somewhat offset the benefits of improved demand and prices for DRAM products.

Moreover, the United State and China’s tit-for-tat trade war makes us apprehensive. This is because the United States is the largest semiconductor manufacturing country, with China being its biggest importer. Micron’s heavy dependence on China is anticipated to keep the company under pressure, at least in the near term.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Micron carries a Zacks Rank #3 but has an Earnings ESP of -0.49%.

Stocks with Favorable Combination

Here are a few stocks, which you may consider as our model shows that it these have the right combination of elements to post an earnings beat in its upcoming release:

Synnex (SNX - Free Report) with an Earnings ESP of +0.13% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Jabil  (JBL - Free Report) with an Earnings ESP of +0.49% and a Zacks Rank #3.

Red Hat   with an Earnings ESP of +0.03% and a Zacks Rank #3.

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