Micron (MU) to Report Q2 Earnings: What's in the Offing?

Micron Technology MU is scheduled to report second-quarter fiscal 2020 results on Mar 25.

For the quarter, the company expects revenues of $4.5-$4.8 billion. The Zacks Consensus Estimate is currently pegged at $4.66 billion, suggesting a decline of 20.2% from the year-ago reported figure.

Management projects earnings to be between 29 cents and 41 cents per share. The consensus mark for earnings stands at 38 cents, calling for a 77.8% slump.

Over the trailing four quarters, the company’s earnings surpassed the Zacks Consensus Estimate twice for as many misses, the average positive surprise being 0.4%.

Micron Technology, Inc. Price and Consensus

Micron Technology, Inc. Price and Consensus

Micron Technology, Inc. price-consensus-chart | Micron Technology, Inc. Quote

 

Factors to Consider

The coronavirus outbreak is expected to have negatively impacted Micron’s fiscal second-quarter performance. The virus has not only claimed human lives but is also affecting the business community with global demand-and-supply disruptions.

High business exposure to China makes the company more vulnerable, as the country has been on a lockdown since late January due to the virus outbreak. Micron’s early quarter benefits from resuming chip shipments to Huawei might have been significantly offset by global business disruptions since late January.

Further, higher mix of lower-margin NAND, coupled with low memory prices and minimal decline in manufacturing cost, is likely to have strained margins.

Also, underutilization expenses associated with the impending acquisition of IM Flash Technologies, its joint venture with Intel INTC, are expected to have dented margins.

In addition, DRAM revenues are likely to have declined year over year and sequentially as well. The Zacks Consensus Estimate for DRAM revenues is currently pegged at $3 billion, indicating a 25.8% year-over-year decline and 3.7% sequentially.

Nonetheless, Micron is witnessing progress in customer inventory adjustments in most of its end-markets since second-half 2019. This might have positively impacted bit demand for DRAM during the fiscal second quarter. A solid uptick in DRAM bit shipments for the cloud, graphics, gaming consoles and automotive application markets is anticipated to have been a positive in the quarter to be reported.

Moreover, the 1Z DRAM chips, which Micron began to ship last August, are expected to have been a tailwind to its business during the period in discussion. Notably, in the fiscal first quarter, the 1Z DRAM chips had the fastest revenue ramp up for any product in its history.

Nevertheless, prevailing weakness in pricing across most market segments is expected to have dampened Micron’s computing and networking business unit. The Zacks Consensus Estimate for revenues from this segment stands at $1.7 billion, indicating a plunge of 35.4% from the year-ago reported number.

What Our Model Says

Our proven model predicts an earnings beat for Micron this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Micron currently carries a Zacks Rank of 2 and has an Earnings ESP of +5.05%.

Some Other Stocks With Favorable Combinations

Here are a couple of stocks worth considering as our model shows that these have the right combination of elements to beat on earnings in the upcoming releases:

Cadence Design Systems, Inc. CDNS has an Earnings ESP of +3.07% and holds a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inovalon Holdings, Inc. INOV has an Earnings ESP of +2.34% and currently carries a Zacks Rank of 2.

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