Bright Outlook: Investors Should Focus on Micron Stock

Micron Technology (NASDAQ:MU) stock closed 7.96% on May 27. The company provided a strong outlook for the fiscal third quarter.

Sophia Nicholson - Author
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May 28 2020, Published 11:48 a.m. ET

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Micron Technology (NASDAQ:MU) stock closed 7.96% on May 27. The company provided a strong outlook for the fiscal third quarter. On Wednesday, Micron announced in a regulatory filing that it would increase its profit and revenue outlook for the May-ending quarter.

Now, the company expects its third-quarter revenues to be $5.2 billion–$5.4 billion. Micron also expects its adjusted EPS to be $0.75–$0.80 in the upcoming quarter. During the second-quarter earnings call, Micron expected third-quarter revenues of $4.6 billion–$5.2 billion with an EPS of $0.40–$0.70. Analysts expect the revenue to rise 7.69% YoY to $5.16 billion, but fall by 12.37% YoY to $20.5 billion in fiscal 2020. Meanwhile, analysts expect the company’s adjusted EPS to be $0.68 per share in the third quarter—a decline of 35.6% YoY. Analysts estimate an EPS of $2.39 in the August-ending fiscal 2020—a decline of 62.4% YoY.

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Micron stock should gain on data center demand

Micron stock has been rising since March 18. Since then, the stock has gained over 42%. The company also reported better-than-expected second-quarter earnings and revenues on March 26. During the second quarter, Micron provided upbeat guidance for the third quarter. However, the company’s earnings and revenues have fallen by double-digits during the second quarter. In fact, Micron’s earnings have posted a YoY decline in the last six consecutive quarters. A decline in revenues and margins due to lower chip memory prices weighed on Micron’s earnings.

Nevertheless, the company benefits from the rising demand in data center markets. Micron witnessed an increase in the demand for notebooks since people had to work from home. The rise in online activities also fueled the need for the Internet’s infrastructure during the lockdown. During the earnings conference call, Micron CEO Sanjay Mehrotra said, “In the data center market, we benefited from strong demand for our products from key cloud and enterprise customers.”

The company hopes that the demand for NAND and DRAM memory chips continues to grow amid higher orders from data center operators. Strong pricing for both NAND and DRAM memory chips should boost the company’s profits. In addition, the company has focused on improvising its supply chain.

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