Micron Q4 preview: Where next for Micron shares?

Micron has benefited from rising prices for its memory chips amid a supply shortage and investors are expecting the record level of growth delivered in the last quarter to have continued. We explain what to expect and consider how Micron shares could react this week.

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When will Micron release Q4 results?

Micron Technology will release fourth quarter earnings after US markets close on Tuesday September 28.

Micron Q4 earnings preview: what to expect from the results

Micron had a record-breaking period in the last quarter, posting the largest sequential increase in revenue in its history as demand for its memory chips continues to strengthen. The company has benefited from the surge in demand for its chips that are used in everything from data centres to smartphones and computers and this, twinned with an undersupply in the memory chip market, has seen a substantial rise in prices.

Prices were 20% higher in the third quarter compared to the second and they are expected to continue to have risen in the fourth, albeit at a slower rate. CEO Sanjay Mehrota said in June that he anticipated the shortage in memory chips to continue until the end of next year, which bodes well for prices going forward. Investors will be eager to know how long the shortage is likely to last and how Micron can capitalise as a result.

This makes Micron an attractive play in the market considering the wider supply shortages in semiconductor chips hitting industries around the world, with the company aiming to outperform the wider market when it comes to revenue growth. Meanwhile, analysts are expecting Micron’s shift to its newest chips – the 1a DRAM and 176-layer NAND – to aide its cost profile further. The company said both chips now account for a ‘meaningful portion of our production’.

Analysts are expecting Micron to report fourth quarter revenue of $8.22 billion compared to $6.05 billion the year before (and versus $7.42 billion in the third quarter). GAAP EPS is expected to soar to $2.24 from just $0.87 last year, while non-GAAP EPS is set to rise to $2.33 from $1.08. If achieved, that will be just above the middle of Micron’s guidance range for both the top and bottom lines.

Notably, Micron has beaten earnings estimates for at least the last eight consecutive quarters, according to data from Refinitiv.

Higher prices and improved profitability will be welcomed considering Micron’s spending is increasing. It is ramping-up budgets to prepare for its next generation of chips and has said capital expenditure this year will be above $9.5 billion compared to just $7.95 billion last year. That is partly driven by the costly purchase of extreme ultraviolet lithography (EUV) machines that are needed to produce new chips, which are reported to cost over $100 million each.

Plus, in addition to larger investment budgets, Micron also decided to start paying dividends in August with an initial quarterly payout of 10 cents per share. It also said it planned on buying back more of its own shares when its share price was low. That was welcomed by investors considering Micron’s competitors make regular payouts to investors, but also adds a new significant cost as spending rises.

Micron shares are trading over 48% higher than at the start of 2021, but have shed over one-fifth of their value since peaking this year in March. A number of brokers have cut their price target on Micron over recent weeks, but they still remain extremely bullish on the stock. The 38 brokers covering the stock have an average Buy rating and a price target of $112.06 – implying there is over 50% potential upside from the current share price.

Where next for the Micron share price?

Micron Technology share price hit an all-time high in mid-April at $96.82 and has been trending lower since. 

The share price trades below the falling trendline and below its 50 & 100 sma on the daily chart, although found support at $69 in August, an 8-month low. 

The RSI is neutral awaiting further clues. Buyers might look for a close over the 50 sma $74, this could open the door to $76 the 100 sma and falling trendline resistance. A move above here could negate the near term down trend. 

Failure to break above the 50 sma could see the price test $69. A move below here could see sellers gain traction toward $62. 

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