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Micron (MU) Up 3.2% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Micron Technology, Inc. (MU - Free Report) . Shares have added about 3.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Micron Q2 Earnings & Revenues In Line, Guidance Upbeat

Micron reported modest second-quarter fiscal 2017 adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of $0.77, matching the Zacks Consensus Estimate.

However, the company had incurred a loss of $0.05 per share in the year-ago quarter.

Quarter Details

Micron’s revenues in the quarter increased 58.4% on a year-over-year basis to $4.648 billion, almost matching the Zacks Consensus Estimate of $4.645 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 17%), primarily due to pricing improvement in the DRAM and NAND sales volume. Also, a 21% increase in DRAM average selling prices (ASP) supported the revenue growth.

DRAM products accounted for 64% of total revenue during the quarter. DRAM revenues increased 22% on a sequential basis. On the other hand, NAND sales volume increased around 11% quarter over quarter.

Storage Business Unit (SBU) revenues came in at $1.04 billion, up 21% sequentially. The increase was primarily due to strong growth in client and cloud SSD shipments.

Revenues from the Mobile Business Unit (MBU) increased 5% sequentially and came in at $1.08 billion. The increase was primarily due to stronger pricing environment.

The computing and networking business (CNBU) saw a 30% sequential increase in revenues to $1.92 billion, primarily due to an increase in 20-nanometer shipment growth across all segments coupled with pricing improvement.

Revenues from the embedded business came in at $590 million, up 2% from the last quarter, primarily due to strength in the automotive and consumer segments.

Micron’s gross profit was up 194.3% on a year-over-year basis to $1.70 billion. Gross margin was 36.7% compared with 19.7% a year ago, primarily due to a strong pricing environment, higher revenue base and favorable product mix.

Selling, general and administrative (SG&A) expenses increased 6.9% year over year to $187 million. Research and development (R&D) expenses were $473 million, up 17.4% on a year-over-year basis. Operating expenses, as a percentage of revenues, decreased 570 basis points on a year-over-year basis to 14.2%.

Micron reported operating income of $1.044 billion against an operating loss of $5 million in the year-ago quarter. The results were driven by strong pricing environment and cost-reduction initiatives.

On a GAAP basis, the company reported net income of $894 million. In the year-ago quarter incurred net loss of $97 million. On a non-GAAP basis the company reported net income of $1.031 billion compared with $12 million reported in the year-ago quarter.

The company exited fiscal second quarter with cash and short-term investments of $3.898 billion compared with $4.169 billion in the previous quarter. Receivables were $2.891 billion compared with $2.453 billion in the previous quarter. Micron’s long-term debt decreased to $11.308 billion from $8.490 billion in the prior quarter.

During the quarter, the company generated cash of $2.543 billion. Capital expenditure was $1.2 billion in the second quarter of fiscal 2017.

Guidance

For the third quarter of fiscal 2017, Micron expects revenues in the range of $5.2–$5.6 billion. The company expects earnings per share in the range of $1.43–$1.57. Management expects gross margin in the range of 44–48% in fiscal third-quarter 2017. Operating expenses are expected in the range of $560–$610 million and operating income is likely to be within $1.8–$2 billion. Going forward, Micron expects favorable supply and demand dynamics to continue in 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum. There have been four upward revisions in the last two months. In the past month, the consensus estimate has shifted by 101.1% due to these changes.

VGM Scores

At this time, Micron's stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with a 'C'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising.  It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.


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