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Micron (MU) Up 18.8% 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 18.8% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Micron's Q4 Earnings & Revenues Crush Estimates

Micron ended fiscal 2017 on a strong note with reporting outstanding results for the fourth quarter. The memory-chip maker’s quarterly revenues and earnings not only marked a significant year-over-year growth but also came ahead of its own guidance range as well as the Zacks Consensus Estimate.

Apart from this, the company’s gross margin, operating income and free cash flow reached to a record level during the quarter. President and CEO of Micron, Sanjay Mehrotra noted that the overwhelming quarterly results were mainly “driven by favorable industry fundamentals and solid execution in deploying our next-generation, lower cost technologies and diversifying our product portfolio toward a richer mix of differentiated, high-value solutions.”

Revenues

Micron’s revenues in the quarter increased nearly 91% on a year-over-year basis to $6.138 billion. Also, reported revenues increased on a quarter-over-quarter basis (up 10%), mainly due to pricing improvement in the DRAM and NAND sales volume. Quarterly revenues also came ahead of the company’s own guidance range of $5.7–$6.1 billion as well as surpassed the Zacks Consensus Estimate of $5.894 billion. The year-over-year increase was primarily due to improved pricing and strong demand environment for DRAM and NAND chips.

Sales from DRAM products, which accounted for 66% of total revenue during the quarter, increased over two-folds on a year over year basis and 13% on a sequential basis. The company witnessed a 5% and 8% rise in bit shipments and average selling price (ASP), respectively, on quarter-on-quarter basis. On the other hand, sales from NAND products, which accounted for 30% of total revenues, marked a growth of 81% on year over year basis and 8% on quarter on quarter basis. A 3% rise in bit shipments and 5% increase in ASP drove the sequential revenue growth.

Business unit-wise, revenues of computing and networking business (CNBU) unit more than doubled from the year-ago quarter and reached to $2.8 billion. Apart from healthy pricing environment, the increase was led by strong demand from cloud customers as they accelerate “architecting data centers and computing capabilities.”

Revenues from the Mobile Business Unit (MBU) reached its highest level at $1.12, registering a year-over-year growth of 76%. Senior vice president and CFO, Ernie Maddock noted that strong revenue growth at MBU was “due in part to the positive progress we have made in qualifying our mobile NAND solutions.”

Storage Business Unit (SBU) revenues came in at $1.3 billion, up 71% year over year. However, sequentially the company witnessed a slight decline in revenues mainly due to flash component issue at some selected TLC 3D NAND products.

The Embedded business unit delivered record performance with revenues reaching $827 million, up 18% from the last quarter and 61% from the year-ago quarter, mainly due to strong bit demand from the consumer applications and automotive customers.

Margins

Micron’s non-GAAP gross profit increased over five-fold on a year-over-year basis to $3.147 billion while margin grew to 51.3% from 18.6% reported in the year-ago quarter. Non-GAAP gross margin also came ahead of the management’s guidance range of 47% to 51%. The robust year over year improvement in gross margin was mainly driven by healthy industry pricing environment and increased adoption of the company’s advanced technology-based products.

Non-GAAP operating expenses increased nearly 13% year over year to $601 million, but came within the company’s guidance range of $575–$625 million. Operating expenses, as a percentage of revenues, decreased 670 basis points on a year-over-year basis to 9.8%.

Micron’s non-GAAP operating income came at $2.546 billion compared with just $66 million reported in the year-ago quarter and came well ahead of the company’s own guidance range of $2.1–$2.4 billion. Non-GAAP operating margin improved to 41.5% from 2.1% in the fourth quarter of fiscal 2016. Higher gross margin and reduced operating expenses as a percentage of revenues led this tremendous growth.

On a non-GAAP basis, the company reported net income of $2.387 billion. In the year-ago quarter, the company incurred net loss of $9 million. Non-GAAP earnings per share came at $2.02 beating the Zacks Consensus Estimate of $1.84. Earnings were also higher than the management’s own guidance range of $1.73–$1.87 per share.

Balance Sheet and Cash Flow

The company exited fiscal fourth quarter with cash and short-term investments of $5.428 billion compared with $4.330 billion at the end of third quarter. Receivables were $3.759 billion compared with $3.497 billion in the previous quarter. Micron’s long-term debt decreased to $9.872 billion from $40.485 billion in the prior quarter.

The company generated operating cash flow of $8.153 billion and free cash flow of $3.3 billion during the fiscal. Capital expenditure was $5.1 billion in fiscal 2017.

Outlook

The company provided outlook for the first quarter of fiscal 2018. For the quarter, Micron expects revenues in the range of $6.1–$6.5 billion.

Non-GAAP gross margin is projected to be in between 50% and 54%. Operating expenses on non-GAAP basis are likely to be in the range of $575–$625 million and operating income is anticipated to come in the band of $2.65–$2.85 billion.

The company expects non-GAAP earnings per share in the range of $2.09–$2.23 per share.

Furthermore, Micron announced a massive $7.5 billion capital expenditure plan for fiscal 2018 which according to Ernie Maddock “will be focused on technology transition and product enablement.” He also reveled that the company has not any plans for wafer capacity additions this fiscal.

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 by 26.3% due to these changes.

VGM Scores

At this time, Micron's stock has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also 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 equally suitable for value, growth, and momentum investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions 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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