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Micron Is Real Close to My Favorite Semis: Here’s How to Play It

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Micron Technology (MU) reported the firm’s fiscal first quarter performance on Monday evening. The firm posted adjusted EPS of $2.16 (GAAP EPS of $2.04) on revenue of $7.69B. The sales number was good for 33.15% year over year growth, but also -7% sequentially. Regardless, Micron beat Wall Street’s expectations for both the top and bottom lines and raised guidance past Wall Street’s projections for the current quarter. Perhaps most impressively, operating cash flow printed at $3.94B, up from $3.88B the prior quarter and up from $1.97B for the comparable year ago period. The stock popped. It was a good night for Micron shareholders.

Breakdown

It’s not in the press release. At least I did not see it there. During the call, CFO Dave Zinsner stated that for the three month period reported that “DRAM revenue was $5.56B, representing 73% of total revenue.” This was up 38% year over year and down 8% quarter over quarter. Zinsner also said, “NAND revenue was approximately $1.9B, representing 24% of Micron’s total revenue.” NAND sales declined 5% sequentially and increased 19% annually.

Taking a look at the key business units… Mobile posted revenue of $1.9B (+27% y/y, +1% q/q), while Storage revenue landed at $1.2B (+26% y/y, -4% q/q) and Embedded generated sales of $1.2B (+51% y/y, -10% q/q).

Guidance

Micron sees fiscal second (current) quarter revenue $7.5B (+/- $200M), which is better than the $7.3B that Wall Street had in mind. The firm sees adjusted gross margin at 46%, and adjusted operating expenses at $975M. As for profitability, the firm now projects adjusted EPS of $1.95 (give or take a dime) versus the consensus view of $1.87. The firm sees GAAP EPS of $1.83.

On the evolution of the business, CEO Sanjay Mehrotra said… “On the customer side, we are seeing greater commitment and collaboration on supply planning, including the use of long-term agreements. Today, over 75% of our revenue comes from volume-based annual agreements, a significant increase from five years ago when they accounted for around 10% of our revenue.” Mehrotra also mentioned that the firm is seeing trends across many high tech areas such as 5G, artificial intelligence, and electric vehicle adoption that are fueling demand for memory chips.

Wall Street

I can find an incredible 17 sell-side five star (rated at TipRanks) analysts that have opined on Micron either last night after the earnings were reported or this morning. Across the 17 after accounting for ratings changes and changes made to target prices, we are looking at 13 “buy” or buy equivalent ratings and four “holds” or hold equivalent ratings. The average price target of these 17 individuals is now $109.24, with a high of $165 (Hans Mosesmann of Rosenblatt) and a low of $77 (Joseph Moore of Morgan Stanley). Excluding this high and this low as outliers as neither is very close to the rest of the pack, the average of the other 15 target prices comes to $107.67.

Charts

Bigger picture? We’ll go out almost two years and see that the support found for this name in October came at almost a precise 50% retracement of the March 2020 through April 2021 bull run, or nearly a standard 61.8% Fibonacci retracement of the stock’s August 2020 through April 2021 rally. The stock is not technically overbought, even on this morning’s gap, which may have to fill at some point. Doesn’t necessarily have to fill anytime soon however. Let’s zoom in.

Suddenly what looked like a stock in decline two months ago, now looks like a long cup now coming out of an attached handle and breaking past pivot. If this is a cup with handle, and I have a pretty good feeling that it is, that changes things substantially, which is why this morning, Wall Street is lining up to name this stock as one of their favorites in the semiconductor space.

Micron

– Target Price: $107

– Pivot: $89

– Add: down to the 21 day EMA (currently $83)

– Panic: Loss of 200 day SMA (currently $79)

P.S. – My personal favorites in the semis are still Nvidia (NVDA) , Advanced Micro Devices (AMD) and Marvell Technology (MRVL) , but Micron is close. Real close.

(NVDA, AMD and MRVL are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

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