Micron Lowers Guidance on Tariff Impacts

Last week, Micron Technology (MU) once again reported impressive quarterly results but ended lower afterwards. The company forecast headwinds due to the imposition of tariffs on Chinese goods. The trade war must end, eventually, which could set up a strong rebound in MU stock. Timing this bet will prove very difficult, if not impossible.

Q4 Results

Micron earned $3.53 a share (non-GAAP). Revenue rose an impressive 37.5 percent to $8.44 billion. But market fears set in after the company said its profitability will get hurt in the next quarter, due to tariffs. In the next three to four quarters, its effects will get smoothed out in the results. CEO Mehrotra said the taxes will get hurt by 50 to 100 bps.

Share Buyback

The drop in MU stock last week creates value for the company as it buys back stock. Micron may buy back as much as 9 million shares in a trading day. In effect, Micron benefits from the stock’s decline. It will cost less to buy the stock while operating margins will fall by no more than a percent.

At a forward P/E of below 4 times, Micron will reward long time shareholders who ignore the short-term fluctuations.