Secular Tailwinds Will Drive Micron Technologies To New Highs
Shares of Micron Technology (NASDAQ:MU) are up about 5.0% in early trading following the release of its FQ2 earnings report. The report shows strong growth across both segments driven by a rising tide of demand from several of our favorite growth stories including the cloud, edge computing, 5G, AI, the IoT, and electric vehicles. While the companies robust results were mostly in line with the consensus the outlook was not. The company’s outlook for growth in calendar 2021 is not only above the consensus but suggests continued growth in the following year that will be augmented by pricing power for the manufacturers.
“Micron’s strong fiscal second-quarter performance reflects rapidly improving market conditions and continued solid execution,” said Micron Technology President and CEO Sanjay Mehrotra. “Our technology leadership in both DRAM and NAND places Micron in an excellent position to capitalize on the secular demand driven by AI and 5G, and to deliver new levels of user experience and innovation across the data center and intelligent edge.”
Micron Beats On The Top And Bottom Line
Micron Technologies had a great quarter and one that we can only fault for one thing, revenue gains were expected. The $6.24 billion in net revenue is up 30.0% from last year but only beat the consensus by 480 basis points which isn’t really that much, not considering the global shortage of microchips we keep hearing about. Revenue gains were driven by sales of DRAM chips which grew 44% YOY and accounted for 71% of sales. Sales of NAND chips were also strong but at a more sustainable 9% YOY pace.
Moving down, the demand that the company is experiencing is allowing them to leverage SG&A and production capabilities to their fullest. The company’s gross margin grew to 32.9% versus the 31.7% predicted by the analysts and it is expected to widen further. The margins had a very real impact on operating cash flow which grew to $3.06 billion from $1.97 billion in the previous quarter and $2.0 billion in the prior year’s Q2 period. On the bottom line, the GAAP EPS of $0.53 beat by $0.15 while adjusted earnings of $0.98 beat by $0.03.
As strong as the Q2 results are it is the guidance that has the stock moving higher. The company is guiding revenue to grow sequentially by 12% accelerating what is already a high-growth growth story. Within that, margins are expected to widen from this quarter’s 32.9% to 41.5% which is well above the consensus estimate. The revenue and margin gains should drive EPS to a range centered on $1.50 for GAAP EPS and $1.62 for adjusted earnings that compares to a $1.48 consensus.
The Technical Outlook: Micron Jumps, New Highs Are In Sight
Shares of Micron Technology jumped on the Q2 news and appear to be heading higher. Prices made a quick dip after the open but have moved up since then to set a new intraday high that is very near to resistance. Both of the indicators are firing buy signals to confirm the move higher as a signal to buy. The only thing holding us back right now is resistance at the $95 level. If this level can be broken we see this moving up to retest the all-time high near $97.50 and then move on to set new all-time highs. The analyst’s consensus is near $105 which assumes the stock will at least make a break to new highs. In our view, with the secular tailwinds driving this market, we believe Micron Technology will outperform the market this year and next.
