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Micron Technology Q3 Preview: 10th Consecutive EPS Beat in Store?

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Quarterly reports always bring about a sense of excitement and anxiousness among companies and investors. Of course, companies look to wow investors, and the impact is brutal if market participants aren’t impressed.

During the first quarter of 2022, investors weren’t very impressed with many companies’ quarterly results, to say the least. We witnessed deep valuation slashes, some in the double-digits, following many quarterly releases in Q1.

It was undoubtedly a brutal quarter, with companies’ quarterly results dented by margin compression, geopolitical issues, and a hawkish Fed. Needless to say, we’ve found ourselves in a highly unique economic environment after a once-in-a-lifetime pandemic.

There are always quarterly reports rolling in. One such company slated to release quarterly results after the bell rings on Thursday is Micron Technology MU. Let’s take a deeper dive into the company to see how it shapes up heading into the quarterly report.

Share Performance

Idaho-based Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. The company’s solutions are used in leading-edge computing, consumer, networking, and mobile products.

Year-to-date, Micron shares have tumbled, decreasing nearly 40% in value and extensively underperforming the S&P 500.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Upon widening the timeframe, the story remains the same – Micron shares have struggled to remain strong after breaking off near early March.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The poor share performance is undoubtedly a concern, but one must remember that 2022 has been a brutal stretch for all semiconductor names.

To provide a background, the chart below shows the year-to-date performance of SOXX, the iShares Semiconductor ETF, compared to MU shares. As we can see, the performances are very similar.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Widespread supply-chain issues in this industry have plagued all companies operating in this realm, compressing margins and, in turn, sending shares downwards.

Earnings ESP & Zacks Rank

Micron is currently a Zacks Rank #4 (Sell) with an Earnings ESP Score of -2.4%.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find companies that have recently seen positive earnings estimate revision activity. The idea is that more recent information is generally more accurate and can better predict the future, providing investors an edge during earnings season.

When combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time, while they also saw 28.3% annual returns on average, according to our 10-year backtest.

However, MU doesn’t fit within those parameters, undoubtedly a concerning development heading into the quarterly report.

Estimates & Previous Quarterly Reports

For the upcoming quarterly release, the Zacks Consensus EPS Estimate resides at $2.45, reflecting a substantial 30% growth in earnings from the year-ago quarter. Analysts have primarily left their earnings estimates unchanged over the last 60 days.

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Zacks Investment Research


Image Source: Zacks Investment Research

Top-line estimates display strength, as well. For the quarter, Micron is pegged to rake in $8.7 billion in revenue, a substantial 17% increase from year-ago quarterly sales of $7.4 billion.

Micron has consistently reported bottom-line results above expectations, chaining together nine consecutive EPS beats in a row dating back to early 2020.

Additionally, MU beat EPS estimates by a notable 9% in its latest quarterly report and has beat EPS estimates by an average of 6.6% over its last four quarterly reports.

The company is no stranger to reporting strong top-line results as well, exceeding sales expectations in twelve consecutive reports dating back to early 2019.

Overall, the company consistently reports strong quarterly results, undoubtedly a positive heading into Thursday.

Valuation

Micron sports a beautifully low 6.4X forward earnings multiple, a fraction of its 29.9X high in 2020 and well below its five-year median value of 8.0X. Additionally, shares trade at a deep 63% discount relative to the S&P 500.

The company sports a Style Score of an A for Value.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

Supply chain constraints and related issues will likely impact the company’s quarterly results. Additionally, its unfavorable pairing of a Zacks Rank #4 (Sell) and a negative Earnings ESP Score raises great concern as well.

Due to these reasons, I think it’s beneficial for investors to deploy a defense-first approach and stay on the sidelines.

A great bet for investors seeking exposure to the semiconductor arena would be NeoPhotonics Corp. NPTN. The company is a Zacks Rank #2 (Buy), and analysts have pushed their earnings estimates higher across all timeframes over the last 60 days.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Year-to-date, shares are up 2%, easily outperforming the S&P 500. Full-year earnings are expected to climb a triple-digit 185% year-over-year. Additionally, the $0.06 per share estimate for the upcoming quarter reflects a massive 127% growth in earnings from the year-ago quarter.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
NeoPhotonics Corporation (NPTN) : Free Stock Analysis Report
 
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