Shares of Micron Technology Inc. rose 1.8% in Wednesday morning trading after the company updated its fiscal second-quarter outlook with a more upbeat profit and revenue forecast.
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The company also forecasts a gross margin of 26% to 27%, compared with its prior forecast, which called for a 24% to 26% gross margin.
Micron expects earnings per share of 51 cents to 56 cents on a GAAP basis and 93 cents to 98 cents on an adjusted basis. The company’s earlier forecast called for 34 cents to 48 cents in GAAP earnings per share and 68 cents to 82 cents in adjusted earnings per share.
Analysts tracked by FactSet were modeling 56 cents in GAAP EPS and 80 cents in adjusted EPS.
Micron’s stock gain bucked the selloff in the semiconductor sector, in which the PHLX Semiconductor Index SOX,
Chief Financial Officer David Zinsner is set to speak at a Morgan Stanley conference Wednesday beginning at 8:45 a.m. PT, Micron said in its release announcing the new outlook.
“While we await color on the upside drivers from the company’s presentation today, we think investors will be focused on understanding the drivers of a $425 million revenue upside versus a gross-margin beat at $225 million (midpoint), or rather, ~50% incremental margin flow-through,” wrote Wells Fargo analyst Aaron Rakers, who said that the fiscal first quarter’s beat and guidance reflected about 54% incremental margin at the midpoint.
The dynamic causes Rakers to predict that Micron’s fiscal second-quarter upside “was more driven by bit shipments than blended [average selling prices] in DRAM, meaning that “pricing dynamics remain a forward…driver” of Micron’s gross margin percentage. He upped his price target on the stock to $115 from $110 while maintaining an overweight rating.
RBC Capital Markets analyst Mitch Steves argued that DRAM pricing was likely a big contributor to the new forecast. Micron’s updated outlook “was unlikely a surprise to the investment community given the significant rise in DRAM spot pricing over the past month,” he wrote, noting that “historically, DRAM spot pricing and Micron stock have had an 80%+ correlation.”
Steves expects that Micron continues to benefit from work-from-home trends, which have driven strong personal-computer sales. He raised his price target on Micron’s stock to $110 from $95 while keeping an outperform rating on the stock.
Shares of Micron have gained 31% over the past three months as the S&P 500 index SPX,
