Micron Earnings Report Preview

Investors should greet the Micron Technologies (NASDAQ: MU) earnings report with few surprises. The company already raised its guidance, following quarter after quarter of results beating expectations.

Earlier this month, reports of a Chinese regulator agent visiting the company, a downgrade from Morgan Stanley (NYSE: MS), and market doubt over NAND pricing stopped the stock from continuing its rally past around $65 a share. MU stock closed at $58.23 last Friday, at a P/E of sub-7 times and a forward P/E of just 5.4 times. Fellow semiconductors Applied Materials (NASDAQ: AMAT) and Lam Research (NASDAQ: LRCX) are trading at a similar short-term downtrend despite the 12x P/E for both. The latter stocks differ from Micron in that they pay a modest dividend at around a 1.6% yield.

Analysts have a $77.50 average price target, implying a 33% upside, on Micron. Mizuho’s Vijay Rakesh ranked Micron a ‘Buy’ with a $70 price target.

With favorably low P/E multiples and promised growth ahead, what will the stock do after the earnings report? The Trump/US/China trade war is creating uncertainties for Micron’s future revenue. Any tariff barrier will slow the growth for all semis. Even if the U.S. is bluffing, the market must still discount the potential trading disruption ahead.

Fundamentally, six models built on finbox.io’s tools set a fair value of $75.36, or a 29% upside, on Micron. This assumes Micron’s growth does not stall. An EBIT margin in the range of 15 – 25% but an assumption of greatly depressed EBIT margin would imply a drop in Micron shares.