Why Analysts Have Such Mixed Emotions on Micron Earnings and Turnaround

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Micron Technology, Inc. (NASDAQ: MU) is set to launch the unofficial start of earnings season this week when it reports earnings on Thursday. Technically earnings season will not begin for another two weeks, but this company being so deeply tied to DRAM and NAND memory makes it an integral part of the technology economy. It is also the first industry-wide chip earnings view that investors will have seen in weeks.

24/7 Wall St. wanted to see several issues here. First is what the official estimates are, and then how Micron’s stock has acted. We also included several analyst report quotes and observations from June that should give investors a good base of what they should be expecting.

The Thomson Reuters consensus estimates for the third quarter (ending May) are -$0.09 EPS (down from a gain of $0.54 last year) and revenues are expected to be $2.95 billion (down 23% from a year ago). Estimates for the coming August quarter are $0.03 EPS, signaling a return to profitability) and $3.20 billion in revenues. Micron watchers and investors should keep in mind that the delayed Inotera acquisition could influence future quarters and guidance, and Wall Street analysts are often atrocious at modeling in ups and downs based upon business acquisitions and combinations.

Micron’s last share price of $13.25 is compared to a 52-week range of $9.31 to $20.57, but that is way down from highs around $35.00 at the end of 2014.

Micron’s stock chart is also fighting right around the 200-day moving average. As of Wednesday, that key 200-day average was $13.02. Micron’s shares were up at $14.00 last week and dipped down under $12.50 on the post-Brexit trading before recovering to $13.25 on last look.

Micron is one of the chip companies that always remains with an elevated short interest as well. The June 15 settlement date had a short interest of 63.7 million shares. That represents 2.62 days to cover and is more or less in line with the average short interest levels seen in 2016.

Then there is a very mixed bag among analysts on Wall Street. Micron’s consensus analyst price target is now only $15.00. That target has drifted lower throughout 2015 and 2016, and now Micron is selling like a hybrid between a value stock and a turnaround stock. There are 17 analysts rating it with various iterations of a Buy rating, 9 Hold or Neutral ratings, and 5 analysts with iterations of a Sell rating.

Wedbush Securities previously had a Neutral rating, but the firm dropped coverage due to an analyst departure. As such, the last recommendation and the estimates and price targets should not be relied upon going forward.

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BofA Merrill Lynch issued a report on June 25 covering Micron among many global chip names in the Brexit wake. While they see a low Brexit impact for chips, Merrill Lynch has an Underperform rating and has a mere $10.00 price objective. The firm said:

We don’t expect any surprises from the results call – operating losses for two consecutive quarters. That said, we think management could reiterate its positive stance on second half earnings recovery on the back of mass production of 3D NAND and 20nm DRAM. Meanwhile, we are still concerned over execution risk in deploying new tech… Our forecast still reveals low- to mid-single digits ROE but larger loss can easily happen if there is a downturn coupled with competitors’ more aggressive chip price cut.