Micron Rockets Higher On Results, Guidance, And Upgrades
Shares of Micron (NASDAQ: MU) are rocketing higher in the wake of the FQ2 earnings report because of three things. The first is that results beat the already high expectations of the market, the second is that guidance is outpacing consensus on top of Q2 strength, and the third is the analysts. The analysts have been bullish on chip stocks and Micron for a while now and they are driving share prices higher. The Pricetargets.com consensus rating has held steady at a firm Buy over the past 12 months and includes the addition of new coverage and an upwardly trending price target. The consensus price target of $113.96 is up in the 12-month, 3-month, and 1-month comparison and suggests 39% of upside is in store for this market.
The latest analysts' commentaries come from Morgan Stanley and Mizuho which upped their targets to $83 and $113. The takeaways from the chatter are that Micron is well-positioned for demand in PC, mobile, and cloud while computing and storage are expected to remain strong as well. The company is benefiting from some tailwinds as well, which include a positive pricing environment, product mix, and advances in technology.
Micron Sets A High Bar For 2022
Micron had a truly outstanding quarter in which not only did it exceed the high bar set by the analysts but by such a margin as to completely alter the outlook for the year. Gains were made in high demand in all segments and supported by ramping production and portfolio offerings. The company reported $7.79 billion in revenue which is up 24.8% from last year and beat the consensus by 345 basis points.
The revenue gains include a significant widening of margin as well and led to outperformance on the bottom line too. The gross margin improved by about 2000 basis points, the operating margin by roughly 2200 basis points, leaving the GAAP earnings at $2.00 and the adjusted EPS at $2.14. The adjusted EPS is up more than double from last year’s $0.98 and beat the Pricetargets.com consensus by $0.16 or about 9%.
Turning to the guidance, the company raised its forecast for revenue this year to $8.7 billion or $0.54 above the consensus figure. This is accompanied by an expectation for 1500 basis points of YOY margin expansion and adjusted EPS of $2.46. The EPS compares well to the $2.25 consensus estimate and we see upside risk in both the revenue and the earnings. There is no sign, really, that microchip shortages are easing and some categories are expected to remain tight well into next year.
Micron Is A Technological Fortress For Investors
Micron is an attractive investment from the capital return perspective because it pays a safe dividend, buys back shares, and has a fortress balance sheet that is net cash in an amount that is very close to $5 billion. The 0.50% dividend yield isn’t large but it is incredibly safe at less than 2.5% of earnings and we expect it to grow over the coming years. As for buybacks, buybacks amounted to 4.8 million shares during FQ2, or about 0.4% of the market cap.
The Technical Outlook: Micron Is Melting Up
The entire chip sector underwent a correction and now it is moving up on positive results with Micron in the lead. Shares of Micron are up more than 4% intraday and confirming a Head & Shoulders Reversal that formed over the past month or so. Assuming the market follows through on this move, we see the stock moving back up to the $96 range with a high probability of breaking above resistance and the all-time highs set way back in 2000. If not, Micron may be range-bound until the reality of business confirms the now elevated expectations.
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