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Micron (MU) Q2 Earnings: What's in the Cards for the Stock?

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Micron Technology Inc. (MU - Free Report) is set to report second-quarter fiscal 2019 results on Mar 20.

Notably, the company beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 2.55%.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate but revenues missed the same. Although the figures improved on a year-over-year basis, both declined significantly sequentially.

Albeit solid growth in mobile, automotive and industrial market drove revenues for the company, CPU shortages and inventory adjustments with several key customers in the cloud, graphics and enterprise market are persistent overhangs on the stock.

As a result, the company’s weak guidance for the fiscal second quarter makes us anxious about its performance.

What to Expect in Q2

Micron projected revenues for second-quarter fiscal 2019 in the range of $5.7-$6.3 billion.

The Zacks Consensus Estimate is currently pegged at $5.92 billion, reflecting a year-over-year drop of almost 19.5%.

The company envisions non-GAAP earnings per share to be roughly $1.75 (+/- 10 cents).

The consensus mark for earnings currently stands at $1.73, indicating a decline of 38.7% from the year-ago period.

Factors at Play

Micron is hit by excess inventory with customers in the cloud, graphics and enterprise market. Fall in demand from key customers like Intel (INTC - Free Report) and NVIDIA (NVDA - Free Report) is a major headwind for the company.

The perpetual decline in DRAM and NAND flash pricing due to oversupply and lower-than-expected growth in end-market demand is overhang constant threat. Intel’s CPU shortage coupled with soft demand for high-end smartphones is dragging down demand for its solutions.

The company fears revenues in the graphics and datacenter market to be adversely impacted during a couple of more quarters by higher-than-normal inventories in gaming cards and waning cryptocurrency-related demand.

Such a scenario compelled the company to lower its outlook for industry demand and supply of DRAM as well as NAND solutions. It also announced a cut in its capital expenditure.

Moreover, the U.S.-China trade war has made the demand environment highly unpredictable for Micron.

However, the company’s focus on improvement in cost structure and increasing the mix of high-value solutions in its portfolio is a tailwind.

The company’s strategies to manage operating expenses by implementing controls on headcount, slowdown in holiday work schedule and discretionary spending reduction are an upside.

What Our Model Says

Our proven Zacks model conclusively shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Micron carries a Zacks Rank of 4 and an Earnings ESP of -4.05%.

Key Pick With Favorable Combination

Here is a stock worth considering as our model shows that it has the right combination of elements to beat on earnings beat in its upcoming release:

Akamai Technologies, Inc. (AKAM - Free Report) has an Earnings ESP of +0.60% and a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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