M icron ( MU ) stock remains one of the better performers in the chip sector, rising 6% over the most six months, sharply outperforming both the tech sector and its peer group within semiconductors.That outperformance is poised to continue, according to analysts at Citigroup.But can Micron’s stock gains hold amid the recent global chip shortage?
The semiconductor giant is set to report second quarter fiscal 2022 earnings results after the closing bell Tuesday.Investors are eager to learn whether Micron can sustain the resiliency the stock has shown over to the next quarter.Citing strong and stable DRAM memory pricing (used in various mobile devices such as smartphones), which should bode well for the company, Citigroup analyst Christopher Danely recently reiterated his Buy rating on the stock with $120 price target.
From current levels of $78 that represents potential premium for more than 53%.Danely believes DRAM pricing could rise in the second-half of the year due to low supply and a recovery in demand.The market is also optimistic about demand prospects of memory chips that will power cloud computing, AI, and 5G.This optimism is tempered with any impact the global chip shortage might have on the company’s performance, particularly on Micron’s guidance for the next quarter and beyond.
As such, on Tuesday the company will need to issue strong guidance that instills confidence that DRAM memory pricing will in fact recover as anticipated.
For the quarter that ended February, the Boise, Idaho-based company is expected to earn $1.98 per share on revenue of $7.53 billion.This compares to the year-ago quarter when earnings came to 98 cents per share on revenue of $6.24 billion.For the full year, ending in August, earnings are projected to be $5.65 per share, up from $4.44 per share a year ago, while full-year revenue of $34.88 billion would rise 30% year over year.
The projected full-year rise in Micron’s revenue and profits would seem to support the relative outperformance int he share price that I discussed above.The company also has topped consensus revenue and profit estimates in ten consecutive earnings reports, affirming the management consistent level of execution.
Micron’s NAND segment, which has grown amid the rise in datacenter demand, remains under-appreciated.That segment’s growth rate of 26.2% is trending higher than the company’s four-year projected average.
Elsewhere, the company is also benefiting from next-generation DRAM technology, known as DDR5.
This transition will drive higher average selling prices which will enable margin expansion and higher earnings per share.Higher EPS is nothing new for the company.This was already noticeable in the first quarter when Micron reported EPS of $2.16 per share on revenue of $7.69 billion, topping analysts’ forecast $2.11 per share on $7.68 billion in revenue.The report sent the stock 9% higher.
Investors were also encouraged by commentary from CEO Sanjay Mehrotra, who said the company continues to take steps to mitigate the supply chain issues.
Along those same lines, Micron boosted EPS and revenue forecast for the just-ended quarters.That execution track record prompted Mizuho Securities analyst Vijay Rakesh to raise his price target on the stock to $98 a share from $95, saying, ”Despite near-term pricing risks, we believe pricing trends are setting up better than previously expected and Micron remains well-positioned longer term.”
Nevertheless, while the company is certainly benefiting from stronger memory demand areas like automotive, mobile and data center, Micron on Tuesday must guide in a manner that suggests confidence in the prospects of the memory chip business.
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