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How Micron's CEO Is Trying to Rally Bullish Investors
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Shares of Micron (MU - Free Report) have dipped nearly 12% since the company’s earnings announcement last week, and with the stock now down significantly from its mid-March highs, investors are growing concerned that the memory-chip maker’s red-hot run is finally coming to an end.
All in all, Micron’s new earnings results were pretty solid. The company posted adjusted profits of $2.82 per share, beating the Zacks Consensus Estimate of $2.76. Meanwhile, quarterly revenue of $7.35 billion was up 58% from the year-ago period and ahead of our consensus estimate of $7.23 billion.
Still, investors who are familiar with cyclical trends in the semiconductor memory space clearly felt the time was right to take their profits from this stock, which had gained roughly 90% in the year prior to its most-recent report date (also read: Micron Posts Earnings Beat, 'Secular Trends' Driving Growth).
But Micron CEO Sanjay Mehrotra is clearly trying to shift this rhetoric. In the company’s conference call following the release of its earnings report, Mehrotra carefully selected his words in an effort to paint a new picture of the industry.
“The dealer market today is very different from the PC-dominated market of the past,” the chief executive said. “More specifically, memory is making possible applications such as AI and VR, and enabling new cloud-based business models which deliver a fundamental value far in excess of a price per bit.”
Memory is a heavily-commoditized segment of the technology sector, thanks in large part to cyclical demand trends that have presented themselves over decades of the aforementioned PC-dominated market.
This helps explain why many memory solutions firms trade with lower valuations than many of their other high-tech peers. For example, the group of Micron, Western Digital (WDC - Free Report) , Toshiba (TOSYY - Free Report) , and Seagate (STX - Free Report) is currently trading with an average Forward P/E of 7.9, which is a significant discount to the 13.2x forward earnings multiple seen in the broader semiconductor market.
Still, Mehrotra is right to point out that the technology sector has evolved over the past few years. The decline of the PC has been well documented, and in addition to that, a whole breadth of new consumer electronics—including smart appliances, wearables, and in-home virtual assistants—have emerged.
These new products are just the tip of the iceberg in terms of applications for VR, AI, and IoT technology. And on the commercial side, there is plenty of growth left for cloud-based computing and new industrial machinery. All of these new applications create immense amounts of data, meaning memory providers like Micron should continue to see rising demand.
“Micron's broad technology portfolio and strong innovation engine position us well for these growth trends. We continue to partner with our customers to ensure our technology and engineering roadmaps deliver the critical features for tomorrow's solutions,” Mehrotra explained.
Of course, good CEOs are always trying to rally their company’s stock, and post-earnings conference calls tend to highlight bullish trends instead of lingering on headwinds. Mehrotra is hardly an unbiased spokesperson, but he is not wrong to say that the memory industry could soon defy the cyclical trends that investors have grown accustom to.
And if the company’s recent earnings estimate activity is any indication, analysts agree with this sentiment. Within the past 60 days, we have seen nine revisions for Micron’s full-year earnings estimates, with 100% agreement to the upside. These revisions have lifted the Zacks Consensus Estimate by $1.16 in this timeframe.
Micron’s positive revision snapshot has helped the stock earn a Zacks Rank #1 (Strong Buy). It may take some time for this recent tech volatility to cool, but the fundamental picture for MU remains strong, and investors should consider scooping up shares at a discount.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeneyon Twitter!
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research. It's not the one you think.
Image: Bigstock
How Micron's CEO Is Trying to Rally Bullish Investors
Shares of Micron (MU - Free Report) have dipped nearly 12% since the company’s earnings announcement last week, and with the stock now down significantly from its mid-March highs, investors are growing concerned that the memory-chip maker’s red-hot run is finally coming to an end.
All in all, Micron’s new earnings results were pretty solid. The company posted adjusted profits of $2.82 per share, beating the Zacks Consensus Estimate of $2.76. Meanwhile, quarterly revenue of $7.35 billion was up 58% from the year-ago period and ahead of our consensus estimate of $7.23 billion.
Still, investors who are familiar with cyclical trends in the semiconductor memory space clearly felt the time was right to take their profits from this stock, which had gained roughly 90% in the year prior to its most-recent report date (also read: Micron Posts Earnings Beat, 'Secular Trends' Driving Growth).
But Micron CEO Sanjay Mehrotra is clearly trying to shift this rhetoric. In the company’s conference call following the release of its earnings report, Mehrotra carefully selected his words in an effort to paint a new picture of the industry.
“The dealer market today is very different from the PC-dominated market of the past,” the chief executive said. “More specifically, memory is making possible applications such as AI and VR, and enabling new cloud-based business models which deliver a fundamental value far in excess of a price per bit.”
Memory is a heavily-commoditized segment of the technology sector, thanks in large part to cyclical demand trends that have presented themselves over decades of the aforementioned PC-dominated market.
This helps explain why many memory solutions firms trade with lower valuations than many of their other high-tech peers. For example, the group of Micron, Western Digital (WDC - Free Report) , Toshiba (TOSYY - Free Report) , and Seagate (STX - Free Report) is currently trading with an average Forward P/E of 7.9, which is a significant discount to the 13.2x forward earnings multiple seen in the broader semiconductor market.
Still, Mehrotra is right to point out that the technology sector has evolved over the past few years. The decline of the PC has been well documented, and in addition to that, a whole breadth of new consumer electronics—including smart appliances, wearables, and in-home virtual assistants—have emerged.
These new products are just the tip of the iceberg in terms of applications for VR, AI, and IoT technology. And on the commercial side, there is plenty of growth left for cloud-based computing and new industrial machinery. All of these new applications create immense amounts of data, meaning memory providers like Micron should continue to see rising demand.
“Micron's broad technology portfolio and strong innovation engine position us well for these growth trends. We continue to partner with our customers to ensure our technology and engineering roadmaps deliver the critical features for tomorrow's solutions,” Mehrotra explained.
Of course, good CEOs are always trying to rally their company’s stock, and post-earnings conference calls tend to highlight bullish trends instead of lingering on headwinds. Mehrotra is hardly an unbiased spokesperson, but he is not wrong to say that the memory industry could soon defy the cyclical trends that investors have grown accustom to.
And if the company’s recent earnings estimate activity is any indication, analysts agree with this sentiment. Within the past 60 days, we have seen nine revisions for Micron’s full-year earnings estimates, with 100% agreement to the upside. These revisions have lifted the Zacks Consensus Estimate by $1.16 in this timeframe.
Micron’s positive revision snapshot has helped the stock earn a Zacks Rank #1 (Strong Buy). It may take some time for this recent tech volatility to cool, but the fundamental picture for MU remains strong, and investors should consider scooping up shares at a discount.
Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research. It's not the one you think.
See This Ticker Free >>