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Micron (MU) Q1 Earnings: Will the Stock Disappoint This Time?

Micron Technology Inc. MU is set to report first-quarter fiscal 2019 results on Dec 18.

Notably, the company beat the Zacks Consensus Estimate in each of the trailing four reported quarters, the average being 5.05%.

In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate and delivered a year-over-year improvement on both counts.

The upside was primarily attributable to strong demand across all product segments. This, along with a proper execution by management, backed the company’s solid performance.

However, the weak guidance provided by the company for the fiscal first quarter makes us anxious about its impending results.

Factors at Play

Micron has been gaining from steep demand for its high-performance chips in the rapidly growing markets of Cloud Computing, Artificial Intelligence (AI), Augmented Reality (AR) and varied applications of the Internet of Things (IoT) technology.

Notably, in fourth-quarter fiscal 2018, strong requirement for data centers and cloud computing led to growth in sales of DRAM and NAND solutions.

Growing demand for SSD products is also encouraging for Micron. Success in the SATA SSD market drove overall SSD revenues in the last reported quarter.

However, Micron anticipates CPU shortages in the client compute market and inventory adjustments with some customers to impact its upcoming results.

The persistent decline in DRAM and NAND flash pricing due to oversupply and weaker-than-expected growth in end-market demand remains an overhang on the stock.

For first-quarter fiscal 2019, Micron during its last earnings call had projected revenues in the range of $7.9-$8.3 billion. However, the company at a recent conference mentioned that it expects revenues to be near the lower end of the prior outlook as market demand softened through the quarter.

Moreover, the tit-for-tat trade war between the United States and China makes us apprehensive. Micron’s heavy dependence on China is anticipated to keep the company under pressure, at least in the near term. The U.S. tariff of 10% on $200 billion imports from China is likely to have a 50-100 basis points impact on the company’s gross margin.

However, the company is working hard to mitigate the risks. Moreover, its increasing cost-reduction initiatives and share buyback strategy will drive the earnings in our view.

The company anticipates non-GAAP earnings per share to be slightly more than $2.95, projected earlier. The Zacks Consensus Estimate is pegged at $2.93, indicating a year-over-year increase of 19.6%.

Micron Technology, Inc. Price and EPS Surprise

Micron Technology, Inc. Price and EPS Surprise | Micron Technology, Inc. Quote

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What Our Model Says

Our proven Zacks model clearly indicates that a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has strong chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Micron has an Earnings ESP of +1.03% but carries a Zacks Rank of 4, which lowers the predictive power of ESP. Thus, this combination makes surprise prediction difficult for the stock.

Stocks With Favorable Combination

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

Ubiquiti Networks, Inc. UBNT has an Earnings ESP of +11.70% and a Zacks Rank of 1.You can see the complete list of today’s Zacks #1 Rank stocks here.

Twitter TWTR has an Earnings ESP of +4.71% and is a Zacks #1 Ranked player.

Akamai Technologies, Inc. AKAM has an Earnings ESP of +2.92% and a Zacks Rank #2.

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