What’s next for Micron share price after solid Q1 FY2020?

Micron Technology Inc, the fifth largest US semiconductor firm by market capitalisation, saw its share price rise as much as 5.6% on Thursday morning, 19 December, following the release of its Q1 financial report for its 2020 fiscal year.

Micron posted a better-than-expected quarter for the three months ended November 2019, with gross revenue of USD5.144 billion, topping earlier industry estimates of US$4.99 billion.

Earnings are up by 5.33% from the previous quarter, but down 35% year-on-year.

GAAP-adjusted income came in at US$491 million, equating to an earnings of US$0.43 per diluted share.

Operating cash flow at US$2.01 billion is down slightly quarter-on-quarter, but a drop of 58.2% from the same period in 2018.

President and CEO Sanjay Mehrota said the Q1 results were ‘solid’ with ‘good profitability and positive free cash flow’.

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Share price steady, more upside coming

Company share price remained buoyant throughout the rest of the week, closing the week above US$55 per share.

Year-to-date, Micron stock is up over 65%.

For investors, this bullishness seems like it would carry over into the new year – a new poll by CNN Business found that 21 out of 35 analysts surveyed said to ‘buy’ Micron shares, nine to ‘hold’, and two said it would ‘outperform’.

J.P. Morgan analyst David Wong, who maintained an ‘overweight’ rating and price target of US$60, wrote in a note: ‘With improving supply/demand fundamentals and as Micron continues executing on its technology migrations, we continue to see upside’.

Raymond James analyst Chris Caso is slightly more cautious, stating that while the current stock price is ‘just a few dollars’ shy of an all-time high, there’s ‘a lot of wood to chop to get there, and we think there are likely to be more risks along the way than what the stock is currently reflecting’.

Strong outlook for investors in 2020

During an earnings call on Wednesday, 18 December, Mehrota said he is ‘optimistic’ that Q2 will be the ‘cyclical bottom’ of the company’s annual financial performance, thanks to efforts at increasing high-value solutions, enhancing customer engagement, and improving cost structures.

‘We have materially improved our competitive position, structurally strengthened our profitability, and are poised to drive long-term shareholder value as industry conditions improve,’ he noted.

High-value solutions in FY2019 accounted for approximately 50% of NAND bits, a figure that is expected to grow to over 65% of all NAND bits sales by next year.

At the same time, the company also remains on track to driving 80% of NAND bits into high-value solutions by the end of FY2021.

‘This mix improvement is an important tailwind for us as it improves our profitability and reduces the volatility in our margins,’ Mehrota added.

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