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Micron Stock: Analysts Are Upbeat before Q4 Earnings

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Micron Technology (MU) is scheduled to report its fourth-quarter earnings after the closing bell today. Micron stock has been in focus due to improving chip trends. We expect the company to have strong fourth-quarter results due to estimate revisions. Notably, there have been positive earnings revisions for the August-ending quarter and fiscal 2019 in the last 30 days.

Micron expects to report an EPS $0.45 per, plus or minus $0.07, in the fourth quarter. The company expects revenues of $4.5 billion, plus or minus $200 million, in the fourth quarter. Micron also expects to post a gross margin of 27.5%–30.5% for the fourth quarter.

Analysts expect Micron’s earnings to fall 86.2% YoY (year-over-year) in the fourth quarter. Likewise, analysts expect the company’s earnings to fall 47.8% in fiscal 2019. Analysts expect the company’s revenues to see a double-digit decline in the fourth quarter and fiscal 2019.

Chip pricing improving

Notably, Micron posted upbeat results in the third quarter. While the company’s earnings of $1.05 beat analysts’ expectations by 32.9%, it fell 39% sequentially and about 67% from the same quarter last year. Revenues of $4.79 billion beat analysts’ estimates by 2.1%, but fell 39% YoY and 18% sequentially.

Micron is the leading manufacturer of DRAM (dynamic random-access memory) and NAND (negative AND) memory chips. During the third quarter, Micron’s memory chip prices fell YoY, but the rate of decline improved. The company’s efforts to utilize its excessive chip inventory improved the prices in the third quarter. For the fourth quarter, we expect higher demand for memory chips to boost chip prices and the company’s profits.

Analysts love Micron stock

Recently, several analysts had an optimistic view of Micron stock amid the favorable memory market environment. Analysts at Goldman Sachs, J.P. Morgan, Deutsche Bank, Longbow, and KeyBanc upgraded Micron stock. While J.P. Morgan expects improved NAND pricing in the near term, Goldman Sachs expects higher chip shipments to boost the fourth-quarter earnings. J.P. Morgan also expects Micron to outperform its previous sales and profit forecast.

Analysts at BMO Capital and Cowen boosted their target prices on the stock on Wednesday. Higher target prices signal analysts’ bullish view on the earnings.

The bullish analysts put Micron’s 12-month target price at $51.59—a 4.3% premium to the current price of $49.47 on Wednesday. Among the 34 analysts covering the stock, 21 recommend a “buy,” ten recommend a “hold,” and three recommend a “sell.”

Micron stock is outperforming the markets

Despite the ongoing trade war, Micron beat most of its semiconductor peers and the broader markets this year. Micron stock has rallied around 55.9% this year. In comparison, the VanEck Vectors Semiconductor ETF (SMH) and the S&P 500 have risen about 37.7% and 19.1%, respectively, this year. Advanced Micro Devices (AMD) has risen about 60.02% year-to-date. Marvell (MRVL), NVIDIA (NVDA), Qualcomm (QCOM), Intel (INTC), and Broadcom (AVGO) have risen about 54.4%, 33.8%, 38.6%, 10.8%, and 9.4%, respectively, this year.

Currently, Micron is trading at $49.47. However, CNBC’s Jim Cramer has a bullish stance on the stock.

Trade deal hopes should further boost Micron stock

The trade ban on Huawei impacted Micron. The company contributed around 13% of Micron’s sales in the first half of fiscal 2019. So, if Huawei stays on the US entity list through 2020, it would impact Micron’s sales.

Micron stock might rally more if there’s a trade deal. Chipmakers expect a favorable trade deal in the meeting in early October. On Wednesday, President Trump said that a US-China trade deal could happen sooner than expected. The expectation of a trade truce sent waves of optimism in the equity markets. The Dow Jones and the S&P 500 each rose around 0.6% on Wednesday. The Nasdaq Composite also gained 1.1%. Notably, the gains came amid fears about President Trump’s political future. House Speaker Nancy Pelosi launched an impeachment inquiry on Tuesday.

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