by Ian Harvey
July 01, 2020
Micron shares were up 6.73% intraday yesterday after reporting Monday afternoon. The memory-chip maker said sales surged in the third quarter and are expected to remain strong in the final period of its fiscal year amid the COVID-19 pandemic.
And, Stock Options Made Easy “Earnings Predictions” Members were well-positioned to benefit; and made 105% potential profit based on a CALL OPTIONS trade so far. More could be likely!
Micron shares closed trading yesterday at $51.52 (+4.83) after reaching a high intraday of $52.46 (+6.73%). Micron shares jump more than 5% in extended trading after reporting Monday afternoon.
Micron Technology (MU) forecast adjusted fiscal fourth-quarter earnings of 95 cents to $1.15 a share on revenue of $5.75 billion to $6.25 billion, which would be a big gain from a year ago when the company reported earnings of 56 cents a share on revenue of $4.87 billion.
Analysts, on average, were predicting fourth-quarter earnings of 75 cents a share on sales of $5.27 billion.
Micron shares gained more than 5% in after-hours trading, following a 1.4% gain in the regular session to close at $49.15.
“As we look ahead at the second half, of course, you know, given the total COVID environment and uncertainties around COVID around the globe, we basically have limited visibility,” said Sanjay Mehrotra, Micron’s chief executive.
“Yet, we do believe that cloud demand in the second half of the calendar year will continue to be healthy for us,” Mehrotra said.
“Earnings Predictions” Members executed a call options trade on Micron shares on Monday, June 29, 2020, at a cost of $1.73; and the sell value of the option hit $3.55 yesterday – a potential profit of 105%.
More profit might be available for those traders that wish to continue to hold as there are still 17 days to go before expiry.
The recommended options trade for “Earnings Predictions” Members.....
** OPTION TRADE: Buy MU JUL 17 2020 50.000
CALL at approximately $2.20. (A low of $1.73 was set).
The Recommended Trade…..
“Idaho-based Micron Technology, Inc. (NASDAQ: MU), a memory chip manufacturer, will report earnings after the market closes. The consensus earnings estimate is for $0.71 per share on revenue of $5.27 billion; and the Whisper number is much the same at $0.70 per share.
The company's guidance was for earnings of $0.40 to $0.70 per share. Consensus estimates are for earnings to decline year-over-year by 29.00% with revenue increasing by 10.07%.
For the last reported quarter, it was expected that Micron shares would post earnings of $0.38 per share when it actually produced earnings of $0.45, delivering a surprise of +18.42%.
Over the last four quarters, the company has beaten consensus EPS estimates three times.
Micron's stock has significantly outpaced the broader market over the past year. Despite crashing this spring in the early months of the coronavirus pandemic, the company's shares have provided investors with a total return of 46.0% compared to the S&P 500's total return of 3.9% over the past 12 months.
Micron shares have struggled with falling earnings and revenue over the past five quarters due mainly to the industry glut of memory chips. However, the chipmaker did manage to beat analyst expectations by 21.6% when it reported earnings for Q2 FY 2020, which ended February 27, 2020. The company's 2019 fiscal year ended August 29, 2019.
Micron is one of the largest makers of DRAM and NAND memory chips. For a quick recap, DRAM chips are key components of PCs and servers, while NAND flash chips are crucial to smartphones and solid-state hard drives. MU has been hurt by pricing over the last year or so. In fact, its quarterly sales tumbled in trailing five periods.
Swings are, however, natural within the historically cyclical semiconductor space that is impacted by larger business spending cycles. Investors should note that Micron referred to its first quarter of fiscal 2020 as the “the cyclical bottom for our financial performance.”
The company reported fiscal third-quarter net income of $803 million, or 71 cents a share, compared with $840 million, or 74 cents a share, in the year-ago period. Adjusted earnings were 82 cents a share, compared with $1.05 a share in the year-ago period. Revenue rose to $5.44 billion from $4.79 billion in the year-ago quarter.
Analysts had forecast adjusted earnings of 75 cents a share on revenue of $5.27 billion.
Micron Technology had already informed investors that it would outperform its original expectations. In late May, Micron forecast adjusted earnings of 75 cents to 80 cents a share and revenue of $5.2 billion to $5.4 billion, up from its forecast of 40 cents to 70 cents a share on revenue of $4.6 billion to $5.2 billion back in March.
During the coronavirus pandemic, consumers are continuing to significantly increase online activity, including e-commerce, gaming and video streaming all of which drive additional data center capacity. Micron shares surged 42% since mid-March as trends like working-from-home and online learning boosted demand for its memory chips and chromebooks or tablets. The chipmaker said that cloud DRAM memory chip sales grew significantly quarter over quarter.
“Micron’s exceptional execution in the fiscal third quarter drove strong sequential revenue and EPS growth, despite challenges in the macro environment,” said Micron CEO Sanjay Mehrotra. “We are ramping the industry’s most advanced DRAM technology into production and have delivered more than 75% of our NAND volume as high-value solutions, supported by record SSD revenue in the quarter. Our portfolio momentum positions us exceedingly well to leverage the long-term growth across our end markets.”
Mehrorta added that most of the chipmaker’s fab and assembly sites operated
at full production throughout the reported quarter. Micron expects data center
trends to continue to be strong, and new gaming consoles to be a tailwind to
demand in the second half of the year.
Analyst Hans Mosesmann at Rosenblatt Securities maintained a Buy rating on the stock with a bullish $100 price target (103% upside potential), saying that 2020 will be a recovery year for the industry with Micron Technology in a significantly better cost competitiveness position relative to previous cycles.
“We like the setup for MU for the back half of 2020 and into 2021 on the notion that the memory cycle, while getting hit by COVID-19, is alive and well,” Mosesmann wrote in a note to investors. “The end markets, while clearly in uncertain times, are becoming broader than just work-from-home (WFH) driven by resumption in global economic activity, and for Micron, this scenario suggests to us a stronger cycle for the company given its much stronger position vs. the last cycle.”
Overall, Wall Street analysts are cautiously optimistic on Micron shares. The Moderate Buy consensus shows 15 Buy ratings versus 6 Hold ratings and 1 Sell rating. The $64.63 average price target would provide investors with a potential 32% gain in the stock in the coming 12 months.
Micron Technology continues seeing strong demand from Internet/cloud giants, as a capex upswing that started in late 2018 gets a boost from investments made to support the traffic spikes that have followed COVID-19 lockdowns.
Cloud DRAM sales were said to be up “significantly” on a sequential basis, and cloud SSD sales, which are also benefiting from Micron’s recent efforts to flesh out its data center SSD portfolio, more than doubled sequentially.
Micron shares saw “healthy” sequential and annual growth for its mobile memory sales last quarter despite COVID-19. The company also reiterated that 5G phone adoptions is driving DRAM and NAND flash content increases for mass-market phones, while adding that the increases are most pronounced in the low-end to mid-range portion of the smartphone market.
Micron shares sees both content increases and seasonal phone launches boosting its mobile sales during the back half of the year, while also suggesting that pent-up demand from consumers who were unable to visit retail stores during lockdowns could provide a lift.
Content gains related to the adoption of ADAS/autonomous driving platforms remain a tailwind, and that it expects automotive sales to return to growth as vehicle production rates improve.
CEO Sanjay Mehrotra said that the inventory levels of cloud clients “are in a healthy place” and suggested mobile clients have built up inventories due to a mixture of expected demand growth and COVID-related supply chain considerations.
"Micron's exceptional execution in the fiscal third-quarter drove strong sequential revenue and EPS growth, despite challenges in the macro environment," CEO Micron Technology CEO Sanjay Mehrotra said in a statement.
"We are ramping the industry's most advanced DRAM technology into production and have delivered more than 75% of our NAND volume as high-value solutions, supported by record SSD revenue in the quarter. Our portfolio momentum positions us exceedingly well to leverage the long-term growth across our end markets."
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It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!