by Ian Harvey
April 03, 2021
Micron Technology Inc reported excellent results for second-quarter fiscal 2021, wherein the top and bottom lines surpassed the respective Consensus Estimate and marked solid year-over-year improvements as well.
“Stock Options Made Easy Members” made gains of 128% within the week.
With the growth story to continue another trade maybe considered.
The Actual Recommended Trade.....
** OPTION TRADE: Buy MU APR 16 2021 90.000 CALLS at approximately $3.35. (actual entry price was $2.60)
The Profit Explained…..
“Stock Options Made Easy members” entered a trade on Micron Technology Monday, March 29, 2021 for $2.60.
The earnings report came out Wednesday, after the market closed, and Micron Technology stock climbed to a high of $94.38 on Thursday – providing members with a potential profit of 128%.
Why The Trade Recommendation On Micron Technology Inc?
The Boise, Idaho-based Micron Technology Inc (NASDAQ: MU), a memory chip manufacturer, will report earnings after the market closes. The consensus earnings estimate is for $0.96 per share on revenue of $6.20 billion; but the Whisper number is a little better at $1.00 per share.
The company's guidance was for earnings of $0.68 to $0.82 per share. Consensus estimates are for year-over-year earnings growth of 113.33% with revenue increasing by 29.25%.
For the last reported quarter, it was expected that Micron would post earnings of $0.71 per share when it actually produced earnings of $0.78, delivering a surprise of +9.86%.
Over the last four quarters, the company has beaten consensus EPS estimates four times.
Micron Technology's prospects have surged in 2021 as rising demand for memory chips has met tight supply, leading to spikes in the prices of dynamic random-access memory (DRAM) and NAND flash chips. These factors enabled Micron to raise its full-year outlook substantially earlier this month.
The company’s performance is likely to have gained from strong memory-chip demand from PC manufacturers, smartphone makers and data-center operators.
The global semiconductor industry returned to growth last year despite disruptions from the Covid-19 pandemic. Memory-chip companies posted the biggest gains in 2020. The semiconductor industry climbed out of a cyclical downturn that started in late 2018.
Short interest has decreased by 26.1% and overall earnings estimates have been revised higher since the company's last earnings release.
The COVID-19 pandemic-induced lockdown and social-distancing measures are spurring demand for PCs and notebooks as more and more workers and students are now working and learning from their homes; which is aiding its top-line performance.
Per IDC data, fourth-quarter 2020 (October-December) PC shipments grew 26.1% to 91.6 million units. Further, the market research firm forecasts 18.2% year-over-year PC shipment growth in 2021.
The work-and-learn-from-home necessity is also stoking demand for cloud storage. Furthermore, the social-distancing trend has boosted the usage of online services globally. Therefore, data-center operators are enhancing their cloud-storage capacities in a bid to accommodate the skyrocketing demand for cloud services, which is fueling demand for memory chips.
Per the IDC data, fourth-quarter 2020 server sales were impressive, which is anticipated to have aided Micron.
Solid recoveries in sales across the smartphone and automotive industries are likely to have supported Micron’s overall financial performance. According to the latest forecast by Gartner, worldwide sales of smartphones will likely be up 11.4% year over year to 1.5 billion units in 2021. This suggests a sharp improvement from the 10.5% decline registered in 2020.
Product wise, Micron’s quarterly DRAM revenues are likely to have improved year over year. The Consensus Estimate for DRAM revenues is currently pegged at $4.31 billion, indicating a 39.8% year-over-year jump.
Revenues from NAND products are likely to have slightly improved to $1.57 billion when compared with the year-ago quarter sales of $1.51 billion.
There is a growing consensus on Wall Street about trend lines in memory prices. Several analysts have already indicated that memory prices are moving north thanks to favorable demand-supply dynamics, and other memory manufacturers are also displaying similar sentiments. SK Hynix, for instance, estimates that demand for memory chips may keep outstripping supply for the full year.
Swiss bank UBS recently joined the fray when it forecast that NAND flash pricing will head higher in 2021, a notable contrast to its earlier predictions. The bank now expects contract NAND prices to rise 5% sequentially in the second quarter as compared to its earlier expectation of a 7% decline, followed by a 10% sequential increase in the third quarter and 2% in the final quarter.
DRAM prices, on the other hand, are expected to clock double-digit-percentage growth throughout the year, and UBS expects that uptrend to continue well into the second half of 2022. A strong memory pricing environment has historically been a tailwind for Micron Technology, so don't be surprised to see the stock deliver more gains as the year progresses.
The Actual Earnings Report for Micron Technology Inc.....
Micron Technology Inc reported revenue of $6.24 billion and adjusted earnings of $0.98 per share, beating analyst estimates on both earnings and revenue. The company’s operating cash flow totaled $3.06 billion compared to $1.97 billion in the previous quarter.
Looking Ahead for Micron Technology Inc…..
In the next quarter, Micron Technology Inc expects to report revenue of $7.1 billion and adjusted earnings of $1.62 per share. The company’s guidance looks strong which is not surprising given the current market situation in the semiconductors segment. The world is suffering from a shortage of chips, which is a bullish development for Micron Technology Inc.
Enthusiasm From The Analysts…..
Deutsche Bank analyst Sidney Ho says things are looking “pretty, pretty, pretty good through CY21.”
“MU's outlook for CY21 in both DRAM and NAND has improved since its last earnings call with strong demand driven by multiple key end markets including cloud, enterprise, mobile and PC,” Ho said. “Post results, we have increased conviction in the business environment for MU in CY21 and believe that the stock should continue to trade at a premium to its historical P/B as it benefits from strong DRAM and NAND markets.”
Accordingly, Ho raised his F3Q EPS estimate to $1.62 from the prior $1.22. For CY21, Ho also increased his EPS forecast - from $6.13 to $7.50.
Ho’s rating is a Buy with a $110 price target.
Also, Needham analyst Rajvindra Gill maintained a Buy rating on Micron Technology Inc shares and increased the price target from $115 to $130.
"We expect MU to benefit from the recovery in the memory cycle, which we believe has exited a super-cycle and is now in a more typical cycle," Gill said.
As well, Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy rating and hiked the price target from $150 to $165.
Severe shortages driven by strong demand in virtually all markets drove Micron's beat and raise narrative last night, Rosenblatt Securities analyst Mosesmann said. The analyst expects the dynamic to continue in calendar 2021, given the upward adjustment of bit demand by the company.
The stabilization of the NAND market, implied by the company, comes as a surprise, the analyst said.
"The direction of CapEx we see as quite bullish and it signals to the industry/competitors moderation and discipline, while signaling to customers that the shortage framework likely extends into 2022," the analyst wrote in the note.
And, Raymond James analyst Chris Caso reiterated a Strong Buy rating and $120 price target.
Micron's second-quarter report checked all the right boxes, with no increase in CapEx, strong pricing, shortages persisting through the year, resumption of buybacks and incremental NAND improvement, Raymond James analyst Caso said.
The market situation remains favorable for Micron Technology Inc as the coronavirus pandemic has boosted demand for chips, while the increased demand from the auto industry supported the upside trend.
Micron Technology Inc will benefit from both strong demand and higher prices for its production.
Analyst estimates for Micron Technology Inc earnings have increased significantly in the recent months. Currently, analysts expect that the company will report earnings of $4.85 per share for the financial year 2021. For the financial year 2022, Micron is projected to report earnings of $9.41 per share so the stock is trading at less than 10 forward P/E which is cheap by modern market standards.
Micron Technology Inc shares have a good opportunity to develop additional upside momentum in the upcoming weeks, and Micron stock will have a chance to test all-time high levels at $97.50 which were reached back in 2000.
An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
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!