Micron Q4 preview: Where next for MU stock?

When will Micron release Q4 earnings?

Micron Technology is scheduled to release fourth quarter and full year earnings covering the periods to September 2 after US markets close on Thursday September 29. A conference call will be held at 1430 Mountain Time.

Micron Q4 earnings consensus

Wall Street forecasts revenue will plunge almost 18% from last year to $6.8 billion in the fourth quarter and have pencilled-in an even steeper 44% drop in adjusted EPS to $1.37. 

If it meets expectations, then Micron is on course to report an 11.7% rise in annual revenue to $30.94 billion and a 37% jump in full year EPS to $8.28.

Micron Q4 earnings preview

The mood has swiftly changed for Micron. The last quarter saw revenue hit an all-time record while earnings hit multi-year highs after experiencing double-digit growth, but the stellar results were accompanied by a warning that demand has significantly weakened amid a flood of oversupply, forcing the memory chipmaker to moderate supply growth as we enter the new financial year.

The guidance for the fourth quarter was already hugely disappointing when it was issued three months ago, demonstrated by the fact shares have fallen 12% since its last set of results. However, markets have become even more wary in the current environment and expectations have been curtailed further in recent months. As a result, Wall Street believes Micron will miss its own guidance this quarter. Below is a table outlining how over 30 analysts believe the company will perform in the fourth quarter compared to the guidance issued by Micron three months ago:

Demand is expected to falter across the board this quarter, blamed on a cooldown in growth after exploding during the pandemic, a drop in consumer spending in China amid Covid-19 disruption and a broader pullback in expenditure amid rampant inflation that is causing a cost-of-living crisis in other countries.

Lower prices and weaker demand for smartphones and consumer electronics, which account for around half of its sales, are set to bite hard. Micron said in June that volumes of chips for the smartphone market would be down around 5% versus last year, which was a shock to the system considering analysts had pencilled-in 5% growth at the time. PC sales could fall as much as 10%. Meanwhile, it also looks like its other major arm serving enterprise cloud and IT infrastructure could also suffer as businesses pullback on IT spending. The fact sales and margins are forecast to miss guidance suggests prices have fallen even further in recent months.

Micron is now moderating supply in the hope this can rebalance the market and revive both prices and demand. This will remain the major headwind over the near term and will pressure cashflow and raise the need to cut costs and budgets.

The outlook for the new financial year will be influential in how markets receive the update this week and the grim economic picture signals the mood points more toward potential downside, and further downward revisions look more likely than not ahead of the results.

Micron provides guidance on a quarterly basis and analysts expect the company will target revenue of $6.02 billion, an adjusted gross margin of 33.6% and adjusted EPS of $0.87 in the first quarter of the new year.

Where next for MU stock?

The weekly chart shows Micron shares are trading just above the $49.30 level of resistance seen during the November 2019 high, which then turned to a level of support during October and November 2020.

This should be treated as an initial floor for the stock that must hold to avoid opening the door to a sharper potential fall toward the $42.50 level of support that emerged throughout 2019 and 2020. The initial upside target should be seen at $52.10 to recapture the lows seen in June and July and then to $57.50 to break above the tough ceiling during the three weeks to September 12.

The daily chart confirms the downside targets of $49.30 and $42.50. Micron shares have rebounded since hitting their lowest level in almost two years on Friday, when the RSI slipped into oversold territory to suggest the initial floor will hold. The stock can eye the June-low of $57 if it can reclaim the first upside target of $52.10.

The 37 brokers that cover Micron currently have an average target price of $68.90, suggesting the stock could rise almost 38% over the next 12 months – although this has been severely cut from over $98 just three months ago.

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