Yes, It Is Time To Buy Micron (NASDAQ:MU)

Micron Shares Tank After Earnings

Shares of Micron Technology (NASDAQ:MU) have not been performing all that well since hitting the pandemic-bottom. The share prices recaptured only a fraction of the pre-COVID highs and are still struggling with resistance. Its understandable past-performance was so lack-luster, oversupply has been plaguing the memory-chip market for years but things are changing. What’s not understandable is today’s 5.0% drop in share prices. The company just reported a blow-out quarter driven by rapidly accelerating trends within tech that promise long-term demand for chips of all types.

"Micron delivered solid fiscal fourth-quarter revenue and EPS resulting from strong DRAM sales in cloud, PC and gaming consoles and an extraordinary increase in QLC NAND shipments," said Micron CEO Sanjay Mehrotra. "We look forward to improving market conditions throughout calendar 2021, driven by 5G, cloud and automotive growth, and we are excited by the continued momentum in our product portfolio."

Micron Technologies: Great Results But The Near-Term Outlook Is Weak

Micron delivered a great report with blowout top and bottom-line figures but it’s not all wine and roses. Although results are strong and the long-term outlook is excellent there is a spot of near-term weakness to worry about. Micron thinks demand for DRAM chips will be mid-teens below supply during calendar 2020 and that will weigh on pricing.

During the last quarter, DRAM sales grew 22% to account for 72% of revenue while NAND chips slipped. Results for the calendar 3rd quarter, fiscal 4th quarter, would have been much better if selling prices hadn’t decline single digits because of the oversupply issue. Looking forward, the company is guiding revenue for the fiscal 1st in a range bracketing consensus but EPS is a bit shy of targets.

So, top-line revenue came in at $6.06 billion growing 24% from the previous year. The figure is $170 million or 2.9% above the consensus. Margins improved on a YOY basis as well, rising 7% at the operating level to top 21.0%. GAAP earnings of $0.87 are a tad shy of consensus but offset by a substantial beat at the adjusted level. When adjusted for comparability Micron earned $1.08 in the quarter, $0.11 better than expected, and nearly double what it earned last year. That’s pretty good.

The longer-term outlook is much better. Although supply issues are going to hamper results in the 4th quarter that dynamic is expected to reverse next year. Next year Micron expects demand for DRAM chips to run about 20% above supply and there is more good news. Analysts at Citi revealed Amazon (NASDAQ:AMZN) has made a significant order for DRAM in the 4th quarter. The order is worth about 6.0% of the global supply and will greatly reduce the over-supply issue. As for the NAND market, although NAND is shrinking as a percentage of sales it is still a growing segment with demand running above supply this year and next.

Micron Is Well-Supported With Wicked Growth In The Forecast

Micron is going to deliver positive YOY growth in 2022 but that is not the story here. Looking at the consensus and the guidance it seems as though Micron’s earnings are going to grow nearly double the year after that. With that in mind, today’s move to test support looks all the more bullish from the long-term perspective because support appears to be confirming.

I say appears to be because you can never trust a candle until the session is closed and this one is far from over. That said, support looks firm at the $48 level and the stock is offering a value here. Micron is only trading about 8X its earnings while Intel (NASDAQ:INTC), Applied Materials (NASDAQ:AMAT), and Advanced Micro Devices (NASDAQ:AMD) are all trading at substantially higher multiples. Shares of Micron may fall further, I can’t rule it out, but if they do they will only be more attractive.