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Micron (MU) Stock Rises Again: Should You Buy Before Earnings?
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Shares of Micron Technology (MU - Free Report) opened more than 2.2% higher on Monday morning, just days before the memory-chip maker is set to deliver its highly-anticipated third-quarter earnings report. This trendy semiconductor stock has now gained more than 4.3% in the past week, leading some investors to wonder if this is a solid earnings play or a risky bubble waiting to bust.
Forces at Play
Micron is a leading manufacturer of DRAM and NAND memory chips. According to several industry sources, prices for both of these components have been improving, largely because of improved product mix optimization and higher demand from PCs, servers, and mobile devices (also read: What's in the Offing for Micron Technology?).
Micron has also been active in the M&A space, actively expanding its core business in key regions. Most recently, the company acquired the remainder of a stake in Inotera in December and made the brand a wholly owned subsidiary in Taiwan.
Nevertheless, Micron Technology is not without competition in the memory-chip space. Over the past year, Western Digital’s (WDC - Free Report) acquisition of SanDisk has increased pressure in the NAND business, and that merger could still cause new problems in the future.
Regardless, Micron has been an incredible growth story recently. Significant improvements in revenue and operating efficiency have left our consensus estimates to call for EPS growth of over 6,000% in the current fiscal year, and this incredible performance has caused share prices to rise more than 45% year-to-date and 125% over the past 52 weeks.
Earnings History
In the most recent quarter, Micron posted adjusted earnings of 77 cents, matching the Zacks Consensus Estimate. Revenues increased nearly 60% year-over-year to $4.65 billion, also matching our consensus estimate at the time.
These latest results were modest for Micron, which has a long history of strong earnings performance:
Micron Technology, Inc. Price, Consensus and EPS Surprise
As we can see, Micron has matched or surpassed our earnings expectations in seven consecutive quarters. This has included some massive beats, and the company has posted an average surprise of 23.49% over the trailing four quarters.
Latest Earnings Whispers
While companies that have beaten earnings in the past tend to be more likely to outperform in the future, previous performance is not a perfect predictor. At Zacks, we prefer to look at the latest earnings estimate revision activity to see how analyst sentiment has changed over time.
As one can note from this snapshot, Micron has not seen any revision activity recently. The company guided well in its latest earnings report, which led to several revisions in the wake of the announcement, but those revisions are not outside of our 60-day window.
This lack of recent revisions means that Micron’s Earnings ESP—our proprietary method of predicting stocks that are likely to beat on earnings—currently stands at 0%. The company is currently a Zacks Rank #3 (Hold), which would improve the predictive power of the Earnings ESP, but without any recent revisions we can’t be too confident.
Bottom Line
Micron shares have been soaring so far this year, and the company has proven its ability to exceed earnings estimates recently. However, these trendy stocks that have already been soaring also pose some downside risk heading into reports. If Micron disappoints, the recent price activity and hype surrounding the stock might exacerbate volatility.
That type of risk is enough to keep some investors away, but the promise of strong growth—and the potential for even further gains—is sure to keep plenty of investors interested in MU ahead of its earnings announcement later this week.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
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Micron (MU) Stock Rises Again: Should You Buy Before Earnings?
Shares of Micron Technology (MU - Free Report) opened more than 2.2% higher on Monday morning, just days before the memory-chip maker is set to deliver its highly-anticipated third-quarter earnings report. This trendy semiconductor stock has now gained more than 4.3% in the past week, leading some investors to wonder if this is a solid earnings play or a risky bubble waiting to bust.
Forces at Play
Micron is a leading manufacturer of DRAM and NAND memory chips. According to several industry sources, prices for both of these components have been improving, largely because of improved product mix optimization and higher demand from PCs, servers, and mobile devices (also read: What's in the Offing for Micron Technology?).
Micron has also been active in the M&A space, actively expanding its core business in key regions. Most recently, the company acquired the remainder of a stake in Inotera in December and made the brand a wholly owned subsidiary in Taiwan.
Nevertheless, Micron Technology is not without competition in the memory-chip space. Over the past year, Western Digital’s (WDC - Free Report) acquisition of SanDisk has increased pressure in the NAND business, and that merger could still cause new problems in the future.
Regardless, Micron has been an incredible growth story recently. Significant improvements in revenue and operating efficiency have left our consensus estimates to call for EPS growth of over 6,000% in the current fiscal year, and this incredible performance has caused share prices to rise more than 45% year-to-date and 125% over the past 52 weeks.
Earnings History
In the most recent quarter, Micron posted adjusted earnings of 77 cents, matching the Zacks Consensus Estimate. Revenues increased nearly 60% year-over-year to $4.65 billion, also matching our consensus estimate at the time.
These latest results were modest for Micron, which has a long history of strong earnings performance:
Micron Technology, Inc. Price, Consensus and EPS Surprise
Micron Technology, Inc. Price, Consensus and EPS Surprise | Micron Technology, Inc. Quote
As we can see, Micron has matched or surpassed our earnings expectations in seven consecutive quarters. This has included some massive beats, and the company has posted an average surprise of 23.49% over the trailing four quarters.
Latest Earnings Whispers
While companies that have beaten earnings in the past tend to be more likely to outperform in the future, previous performance is not a perfect predictor. At Zacks, we prefer to look at the latest earnings estimate revision activity to see how analyst sentiment has changed over time.
As one can note from this snapshot, Micron has not seen any revision activity recently. The company guided well in its latest earnings report, which led to several revisions in the wake of the announcement, but those revisions are not outside of our 60-day window.
This lack of recent revisions means that Micron’s Earnings ESP—our proprietary method of predicting stocks that are likely to beat on earnings—currently stands at 0%. The company is currently a Zacks Rank #3 (Hold), which would improve the predictive power of the Earnings ESP, but without any recent revisions we can’t be too confident.
Bottom Line
Micron shares have been soaring so far this year, and the company has proven its ability to exceed earnings estimates recently. However, these trendy stocks that have already been soaring also pose some downside risk heading into reports. If Micron disappoints, the recent price activity and hype surrounding the stock might exacerbate volatility.
That type of risk is enough to keep some investors away, but the promise of strong growth—and the potential for even further gains—is sure to keep plenty of investors interested in MU ahead of its earnings announcement later this week.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>