Micron (MU - Free Report) has been on a tear so far in 2019 demonstrating 55.9% returns, despite the volatility of the share price and the broader market. Investors remain optimistic about this stock raising estimates over the last month as the firm closes in on its August quarter earnings report. MU’s is currently sitting at a Zacks Rank #2 (Buy) coming into its fiscal Q4 earnings release, which is expected to be released after the bell Thursday, September 26.
MU is typically a big mover on earnings with an average move of 6.8% over the past 10 quarterly reports (6 up, 4 down). Zacks Consensus Estimates for Q3 consist of an EPS of $0.43 on sales of $4.52 billion, representing declines of 88% and 46%, respectively. This massive decline is due to the significant cyclicality that comes with the semiconductor category.
Micron is a global leader in memory and storage chips. The company experienced outrageous growth between 2016 and 2018 with the primary driver being hyperscale computing or hyperscaling.
There was an enormous amount of demand from data centers to build out their infrastructures’ in order to meet the impending consumer demand for cloud computing, AI development, crypto mining and other data center services. Micron’s Data center revenue more than tripled between 2016 & ’18.
There has since seen a substantial slowdown as these hyperscaling data centers have met their current needs and are only just digesting the tech they purchased last year. Demand is expected to pick up in the next couple years when another hyperscaling wave hits the semi category
Mobile memory chips are Micron’s second largest category and have experience a similar narrative to its data center chips. This segment saw 22% annual grow for the last two years, but is expected to see a marginal decline as MU’s fiscal year comes to a close after the bell. This is due to a decline in smartphone demand in recent quarters. The next generation of 5G phones should thrust Micron’s mobile business unit back into growth.
This business is highly competitive with industry leading players like Intel (INTC - Free Report) and Samsung (SSNLF - Free Report) holding large market shares. I believe that Micron’s pure-play approach positions the firm well to remain a leader in the space moving forward.
Performance & Valuation
Despite the significant slowdown in Micron’s topline this year, its share price has been booming. Investors are looking to the future of this company and discounting the short-term cyclicality that is inherent in the semiconductor space. The long-term outlook for this company remains strong.
MU is being valued at a 19.5x forward P/E, which is on the higher side of the firm’s 5-year trend. I might wait for a drop in valuation before putting a position on, especially considering the volatility this stock is prone to.
Micron is one of the largest semiconductor stocks in the market and I see this continuing with investor sentiment on its side. This evenings earnings release could swing this stock one way or the other, but I don’t expect a marginal surprise to be the catalyst. Look for management’s forward guidance and sentiment during this report and call, as this will likely be the driver of a share price action.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>