Micron Stock Gets Fried After Earnings (MU)

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Micron (MU), which is the largest maker of memory chips in the U.S., has had a really terrible year, with shares off about 31% year-to-date as of yesterday’s close. And things got even worse today.

Micron Technology mu stockOn news of a disappointing fiscal Q3 earnings report, Micron stock is off another 18%, bringing MU down 44% YTD.

Let’s take a deeper look at the results. In the quarter, revenues came to $3.85 billion and adjusted earnings were 54 cents per share. Yet the Wall Street consensus called for revenues of $3.9 billion and earnings of 56 cents per share.

The guidance for Micron earnings wasn’t much better. For fiscal Q4, the company forecasts revenues of $3.45 billion to $3.7 billion, far below the analysts’ consensus of $4.16 billion.

OK, so what’s behind the drop in Micron earnings? The main reason is the slowdown in the PC market. Even though MU has made strides in diversifying its business, the company still has heavy concentration in the category. For example, in Micron’s DRAM memory business, PC shipments accounted a little more than 30% of sales.

Yet none of this should be much of a surprise. Smartphones and other mobile devices continue to take share away from PCs. Besides, there appears to be a drop in new PC sales as consumers continue to wait for Microsoft’s (MSFT) Windows 10 operating system.

The Good News for Micron Stock

But then again, there is some silver lining for Micron stock. According to the Micron earnings call, the company expects a stabilization of the PC market in the second half of the year — and perhaps even some growth.

MU will also begin to roll out its next-generation 3D chips soon. The technology involves stacking circuits on top of each other, allowing for substantial increases in capacity, which will be ideal for smaller devices. But there should also be a nice boost from the heft of its partner, Intel (INTC), which is part of a major collaboration agreement.

In the meantime, MU should continue to get traction with its aggressive moves into other market segments, such as servers, cloud computing, game consoles and even medical devices. But perhaps the biggest driver is the growth of mobile devices in emerging markets. For the most part, there is a transition to more sophisticated phones, which will require much higher-capacity memory chips.

For investors, though, the big attraction is the dirt-cheap valuation on Micron stock. Consider that the forward price-to-earnings ratio is only 7. So yes, it seems like much of the bad news is already factored into the stock — and the market has likely overreacted in its selling.

But going forward, there are some potential catalysts to get things back on track, such as 3D chips as well as the stabilization with the PC market (especially with the launch of Windows 10 for later in the year, which should spark new sales). In other words, it looks like Micron stock is at a fairly attractive entry point for patient investors.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/micron-stock-mu-earnings/.

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