Will Micron Share Price Bottom Out?

In its most recent quarterly report, US chipmaker Micron Technologies Inc showed their outlook dropped by more than $1 billion. Unfortunately, Wall Street estimates for the company were already low, and the combination continued to drive the share price down even into after-hours trading activity, falling about 1.41 percent in addition to the day’s activity.

More specifically, shares of Micron fell 9 percent after market close, which actually had a slight 0.7 percent bump on the regular session, to end the day at $34.11.  The slide picked up momentum, however, after Micron Chief Financial Officer David Zinsner predicted the company would show adjusted second-quarter earnings between $1.65 and $1.85 per share on revenue between $5.7 billion and $6.3 billion.  On the other hand, analysts had, on average, forecast Micron would have adjusted earnings of $2.39 per share on revenue exceeding $7.26 billion.

What is fortunate for Micron is that this dramatic drop is simply the result of an overstock of chips still on the market at a time when consumers have built up inventory and retailers are charging a premium price.  While that does not make it easier to remedy any time soon, Chief Executive Sanjay Mehrotra said, on the same earnings conference call, that inventory levels always vary between customers, so the oversupply issues will likely not be worked out until late into 2019.

At the end of the day, Micron reported a fiscal third-quarter net income of $3.29 billion, which equates to $2.81 per share.  Fiscal net income from the same period one year ago was $2.68 billion, which equates to $2.19 per share.  Thus, the adjusted earnings per share is $2.97.

Perhaps the most important thing for Micron to focus on right now is their gross margin deterioration.  For roughly the past decade, Micron stock has largely been correlated with the company’s gross margins.  However, with poor guidance, Micron’s gross margins are experiencing rapid deterioration and technical charges suggest that the stock probably has even more downside risk. Technical also shows the stock has been in decline since June and is now trading around a critical level:  $32.50.  All this, together, could be a sign that the stock is about to bottom out, to reach a share price below $30.