by Ian Harvey
August 30, 2019
Micron Technology, Inc. (NASDAQ: MU), a memory chip manufacturer, saw its stock fall 11% after its Q4 of fiscal 2019 earnings. This slump occurred after the stock rallied as much as 20% in September on analysts’ optimism. And, Micron stock had rallied 50% in the three months from July 25 to September 25.
Maybe this is a good time to buy due to other investors reactions to Micron’s weaker earnings guidance for the first quarter of fiscal 2020, pushing the price down to a bottom level.
In the article “Options Winners for Last Week” I outlined the earnings report, and suggested at the time that this may be a good time to buy. Here is a transcript from the article.....
“Shares of Micron Technology plunged 6.95% to $45.22 in after-hours trading on Thursday despite beating consensus estimates on GAAP earnings for the fourth quarter of fiscal 2019 by 8 cents.
And trading on Friday saw Micron Technology stock dip 11% after its Q4 of fiscal 2019 earnings. This slump occurred after the stock rallied as much as 20% in September on analysts’ optimism.
Micron posted 49 cents per diluted share on $4.87 billion in revenue, reflecting a 1.7% increase from the previous quarter. Revenue beat projections by $310 million.
The Boise, Idaho-based semiconductor memory manufacturer also recorded $2.23 billion in operating cash flow, down 17.7% from the previous quarter, and $1.97 billion in total funds used as capital expenditures, a 10.9% drop. As a result, the adjusted free cash flow fell 47.8% to $263 million.
This is probably a good time to buy, as investors react to Micron’s weaker earnings guidance for the first quarter of fiscal 2020.”
YOU NEED TO BE IN TO PROFIT!
Micron Technology is a cyclical stock that witnesses windfall gains in an upturn and losses in a downturn. The computer memory market has been in a downturn for around a year now. However, Micron’s financial position is holding strong. This is a great opportunity to buy in the downturn and sell in the upturn.
Stock Options Made Easy members will be considering an options play on Micron Technology. If you are interested in joining us and participating in this play click here.
The company reported positive FCF (free cash flow), a strong balance sheet, and double-digit ROI (return on investment) in fiscal 2019.
Micron Technology produced an OCF (operating cash flow) of $2.2 billion, or 46% of its revenue, in Q4 2019. The OCF is the cash a company earns from its daily operations. In Micron’s case, it’s by selling memory chips. The company’s high cash flow ratio of 46% shows its improved profitability, which was achieved by transitioning to cost-effective nodes.
Future Earnings of Micron Technology.....
Looking ahead to the first quarter of fiscal 2020, Micron Technology expects to post earnings per diluted share of 35 to 49 cents on $4.8 billion to $5.2 billion in revenue. Consensus estimates that earnings per share will be 47 cents on $4.76 billion in revenue.
Join us today and see what we are considering for Micron Technology!
Analysts Take on Micron Technology …..
The DRAM business showed an approximate 1% sequential revenue increase, and NAND revenue was up 5%, RBC Capital Markets analyst Mitch Steves said in a note.
Bulls can look at the print and conclude the company is "past the bottom" on NAND, while DRAM is starting to bottom, the analyst said.
Micron Technology emerged from its report as a "structurally more profitable company," and the case for upside in the stock remains unchanged, the BMO Capital Markets analyst Ambrish Srivastava said. BMO maintains an Outperform rating, unchanged $60 price target.
The company's performance in 2020 "should look better" due to catalysts across the 5G and data center markets, Mizuho Securities analyst Vijay Rakesh said. Mizuho maintained at Buy, unchanged $50 price target.
It will be "hard to predict" if gross margins will move higher in the near-term, although they should move higher from 29% in fiscal 2020 to 38% in fiscal 2021, KeyBanc Capital Markets Weston Twigg said. KeyBanc maintained an Overweight rating, price target lifted from $58 to $59.
Where to now?
Micron Technology CEO Sanjay Mehrotra said, “We are encouraged by signs of improving industry demand, but are mindful of continued near-term macroeconomic and trade uncertainties.”
Mehrotra confirmed that the memory market should return to its growth trend. However, this trend relies on China and the United States reaching a trade deal. This condition resulted from Micron’s high exposure to China and the trade war’s impact on it.
Micron’s vulnerability to the trade war encouraged investors to pull out from the stock. However, the low $40 range is an attractive price to buy, as the stock is expected to cross $50 if the trade war eases.
When would we expect to enter an options trade on Micron Technology?
What will “Stock Options Made Easy” advise members to do?
Is another trade to be considered?
AS ALWAYS THE DECISION IS YOURS!
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!