A month has gone by since the last earnings report for Micron Technology, Inc. (MU - Free Report) . Shares have added about 4% 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 Tops Q3 Earnings & Revenues, Guidance Upbeat
Micron Technology reported strong third-quarter fiscal 2017 adjusted earnings per share (excluding the impact of one-time items but including stock-based compensation expense) of $1.40 per share, which beat the Zacks Consensus Estimate of $1.37 per share. On a Non-GAAP basis the company reported earnings of $1.62 per share compared with a loss of 3 cents reported in the year-ago quarter.
Micron’s revenues in the quarter increased 92.1% on a year-over-year basis to $5.566 billion and surpassed the Zacks Consensus Estimate of $5.370 billion. The year-over-year increase was primarily due to strong DRAM pricing environment and favourable product mix. Also, reported revenues increased on a quarter-over-quarter basis (up 20%), mainly due to pricing improvement in the DRAM and NAND sales volume.
DRAM products accounted for 64% of total revenue during the quarter. DRAM revenues increased 20% on a sequential basis. On the other hand, NAND products accounted for 31% of total revenues. Notably, NAND sales volume increased around 21% quarter over quarter.
Storage Business Unit (SBU) revenues came in at $1.3 billion, up 26% sequentially. The increase was primarily due to strong unit growth of SSDs and a favourable pricing environment.
Revenues from the Mobile Business Unit (MBU) increased 4% sequentially and came in at $1.1 billion. The increase was primarily due to stronger pricing environment.
The computing and networking business (CNBU) saw a 25% sequential increase in revenues to $2.4 billion. The increase was caused by higher bit shipments, better-than-expected growth in segments like enterprise, graphics and high-performance memory coupled with pricing improvement.
Revenues from the embedded business came in at $700 million, up 19% from the last quarter, mainly due to strong bit demand and increased average selling prices of DRAM coupled with strength in the automotive and consumer segments.
Micron’s gross profit was up 423.9% on a year-over-year basis to $2.609 billion. Gross margin was 46.9% compared with 17.2% a year ago due to a strong pricing environment, increased DRAM ASPs and favourable product mix.
Selling, general and administrative (SG&A) expenses increased 37.8% year over year to $204 million. Research and development (R&D) expenses were $434 million, up 13.6% on a year-over-year basis. Operating expenses, as a percentage of revenues, decreased 651 basis points on a year-over-year basis to 11.6%.
Micron reported operating income of $1.963 billion against an operating loss of $27 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 $1.647 billion. In the year-ago quarter, the company incurred net loss of $215 million. On a non-GAAP basis Micron reported net income of $1.896 billion compared with a loss of $29 million reported in the year-ago quarter.
The company exited fiscal third quarter with cash and short-term investments of $4.330 billion compared with $3.898 billion in the previous quarter. Receivables were $3.497 billion compared with $2.891 billion in the previous quarter. Micron’s long-term debt decreased to $10.485 billion from $11.308 billion in the prior quarter.
During the quarter, the company generated cash worth $2.4 billion. Capital expenditure was $1.3 billion in the third quarter of fiscal 2017. Free cash flow during the quarter came in at $1.1 billion.
For the fourth quarter of fiscal 2017, Micron expects revenues in the range of $5.7–-$6.1 billion. The Zacks Consensus Estimate is pegged at $5.53 billion. The company expects earnings per share in the range of $1.73–-$1.87 per share. The Zacks Consensus Estimate is pegged at $1.37 per share.
Management expects gross margin in the range of 47–-51% in fourth-quarter fiscal 2017. Operating expenses are expected to fall within $575–-$625 million and operating income is likely to be in the range of $2.1–$2.4 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 four revisions higher for the current quarter. In the past month, the consensus estimate has shifted upward by 27.2% due to these changes.
At this time, the 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 20% 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.
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.