Micron Technology Earnings Preview: Can Momentum Continue?

Memory products maker Micron Technology MU, shares of which have been hitting new multi-year highs in the past few weeks, is scheduled to report its fiscal third-quarter results Monday June 23, after the markets close.

Analyst sentiment has been bullish, and Micron's acquisition of Elpida Memory last year has been boon for margins and cash flow. Investors will be looking for that to continue to be the case. Micron has posted four straight quarters of earnings gains, as well as a streak of five quarters of year-over-year sales growth.

See also: Semiconductor ETFs Are This Year's Technology Titans

Expectations

Analysts on average predict that Micron Technology will report that its revenue for the quarter increased more than 67 percent year-over-year to $3.89 billion. Earnings of $0.70 per share are also in the consensus forecast. That would be all the way up from a reported profit of just $0.04 per share in the comparable period of last year.

Note that the consensus earnings per share (EPS) estimate has risen by two cents in the past 60 days, and the estimates range from $0.58 to $0.79. The company topped analysts' EPS expectations in the previous quarter by almost 12 percent, and by about 79 percent in the period before that.

Micron Technology attributed strong second-quarter earnings in part to strong sales of Trade NAND Flash products that offset lower selling prices. Revenues from sales of DRAM products were essentially flat year-on-year. The share price dropped more than 10 percent following the second-quarter report.

Looking ahead, the EPS forecast for the three months that end in August so far calls for revenue up almost 43 percent from a year ago, as well as sequential and year-over-year growth on the top line. Full-year revenues are predicted to be more than 77 percent higher, while earnings swung to a profit from a year-ago net loss.

The Company

Micron Technology is one of the world's leading providers of advanced semiconductor solutions. The company manufactures and markets a variety of dynamic random access memory (DRAM) products, as well as NAND and NOR flash memory products. It markets its products to original equipment manufacturers and retailers.

This S&P 500 component was founded in 1978, and its headquarters are in Boise, Idaho. It has a market capitalization of around $34 billion. D. Mark Durcan has been Micron Technology's chief executive officer since February 2012.

Competitors include SanDisk, which is expected to post modest growth on the top and bottom lines in the current quarter. Micron Technology also competes with the likes of Samsung Electronics and Toshiba, which have flash memory production divisions.

See also: Analysts Respond Following SanDisk's $1B Offer For Fusion-io

During the three months that ended in May, Micron Technology appointed a new vice president to its storage business unit, agreed to a settlement in an antitrust lawsuit, released a new SATA solid state drive for data centers and announced a collaboration with Wave Systems.

Performance

Micron Technology has a long-term earnings per share growth forecast of more than 19 percent, and its price-to-earnings (P/E) ratio is less than that of SanDisk. It has a return on equity of more than 32 percent, but its operating margin is less than that of SanDisk. Micron Technology does not offer a dividend.

Note that the number of Micron Technology shares sold short, as of the most recent settlement date, represented more than 10 percent of the total float, though short interest has been shrinking since March. At the current average daily volume, it would take more than five days to close out all short positions.

Of the 32 analysts surveyed by Thomson/First Call who follow the stock, nine rate it at Strong Buy and another 10 also recommend buying shares. A move to their mean price target would represent a gain of almost 10 percent for the shares. That would of course be another new multi-year high.

At the close on Friday, shares were up about 47 percent year to date. The share price is well above the 50-day and 200-day moving averages. Over the past six months, the stock has easily outperformed the broader markets, but it has narrowly underperformed SanDisk in that time.

At the time of this writing, the author had no position in the mentioned equities.

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