Micron to decline on concerns over flat YoY margin

Aided by a strong rise in the sales of memory chips and higher margin realization, last week, Micron Technology Inc. (NASDAQ: MU) reported fiscal 2017 first-quarter results that beat analysts’ estimates.

The positive results and the management’s optimistic note about the growth prospects pushed the share price to a high of $23.61.

However, in the past few days, profit booking has pushed the stock to $22.30 level. Due to the reasons provided below, we anticipate the decline to continue until the stock reaches the level of about $21.

The Boise, Idaho-based company’s first-quarter revenues of $3.97 billion was higher than $3.35 billion reported in the first-quarter of fiscal 2016 and better than analysts’ estimates of $3.95 billion.

On a GAAP basis, the company reported fourth-quarter net income of $180 million or $0.16 per share, compared with $206 million or $0.19 per share in the similar period last year. Notably, the company reported a net loss of $170 million or $0.16 per share in the prior quarter.

Excluding charges, the Q1 2017 non-GAAP income increased to $335 million or $0.32 per share, from $299 million or $0.29 per share in 1Q2016. The Wall Street analysts were anticipating non-GAAP net income of $0.28 per share for the quarter ended December 1st .

The 24% and 26% increase in DRAM and NAND sales revenue, compared with the previous quarter, gave way to an impressive performance.

For the second-quarter of fiscal 2017, Micron anticipates consolidates revenues of between $4.35 billion and $4.7 billion. The company expects gross margin in the range of 31% to 34% and operating expenses of between $590 million and $640 million.

Micron forecasts Q2 2017 earnings of between $0.58 and $0.68 per share. Micron continues to face stiff competition from Samsung and SK Hynix. The competition is going to intensify further with the entry of three memory chips making companies from China. The gross margins remain more or less the same on a YoY basis, even though there is an improvement on a QoQ basis.

So, fundamentally, the stock is expected to rise in the long-term. However, in the short-term, we can anticipate the stock to cool down considering the near 12% rise we saw soon after the release of the first-quarter results.

The price chart indicates minor resistance for the stock at 22.80. The stochastic oscillator is in the overbought region. The declining momentum indicator confirms the weakness in the stock. On the basis of signals from these two indicators we forecast a decline in the share price to the next major support level of 20.90.

A binary trader can purchase a low or below contract to gain from the forecasted downtrend in the price. The trader should invest only if Micron trades above $22 in the equity market. With a contract expiry date between Jan 25th and Jan 27th , a trader has better chances of ending the trade in the money.

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