Micron Beats 4Q17 Estimates, Issues Strong 1Q18 View

In our September 26th report on NAND and DRAM chip manufacturer Micron Technology (NASDAQ: MU), we had forecast a rally in the stock, which was trading at about $35. Additionally, we had also mentioned our desire to invest in a call option valid for a week. As anticipated the stock made a break out on the top side and closed at $39.33 on Friday. Correspondingly, our option expired in the money. We expect the rally to continue in the week ahead on the basis of exceptional fourth-quarter results reported last week.

The Boise, Idaho-based company reported a near 100% increase in the fiscal 2017 fourth-quarter revenues to $6.138 billion, from $3.217 billion in the fourth-quarter of 2016.

During the fourth-quarter ended August 2017, Micron recorded a swing to profit of $2.368 billion, or $1.99 per share, compared with a net loss of $170 million, or $0.16 per share in the corresponding quarter of 2016. Excluding charges, the non-GAAP net income in 4Q17 was $2.386 billion, or $2.02 per share, compared with a non-GAAP net loss of $9 million, or $0.01 per share in 4Q16. On average, analysts surveyed by Thomson Reuters had expected earnings of $1.84 per share on revenue of $5.95 billion.

The Q4 2017 GAAP gross margin increased to 50.7%, from 18% in Q4 2016. Micron ended the first-quarter with cash and short-term investments of $5.428 billion, up from $4.398 billion last year.

For fiscal 2018 first-quarter, Micron expects earnings of between $2.09 and $2.23 per share. Revenue is anticipated in the range of $6.10 billion to $6.50 billion. The 1Q18 guidance issued by the company is also higher than the Street expectations. The Consensus estimate of analysts currently calls for earnings of $1.85 per share on revenues of $6.06 billion.

Commenting on the results, Sanjay Mehrotra, CEO of Micron, stated that he anticipates the strong demand for the memory chips to continue into 2018. The Wall Street analysts are of the opinion that Micron would continue to benefit from an increase in the sale of memory products such as high-end laptops, smart phones, etc. As companies have started investing more in areas such as artificial intelligence and networking, the demand is only expected to surge in the months to come.

Following the impressive fourth-quarter results, several investment research firms, including Cowen, Baird, Susquehanna Financial Group, FBN Securities, Mizuho Securities, Needham, and Morgan Stanley have raised their price target for the stock. Currently, the average price target for the stock of Micron is $44.88. Thus, considering the strong 4Q17 results and impressive 1Q18 guidance, we expect the stock to rally further in the days to come.

As seen below, the stock is trading above its 22-period non-lag moving average. Additionally, the MACD indicator is moving above the zero line. The bullishness is also confirmed by the money flow index indicator, which is moving above the reading of 50. Thus, we can expect the stock to forge new highs during the week ahead.

Micron - Technical Analysis - 2nd October 2017

To gain from the prevailing uptrend, we may purchase a high or above option offered by a reputed binary broker of choice. A strike price of about $37 and an option expiry date between October 10th and October 12th is preferred for the trade.