Wednesday, March 25, 2020

Micron: A Time to Go Long or Call in Your Chips?

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What’s happening: Micron Technology is scheduled to report its fiscal second-quarter results after the closing bell on Wednesday, March 25.

What happened: The Boise, Idaho-based chipmaker has beaten earnings expectations every quarter for the past two years. However, the company has recently been facing intense pressure on its margins due to a steep decline in chip prices amid a supply glut in 2019.

Despite this, investors are now bullish about Micron and expect the margin pressure to ease significantly. It is to be seen whether investors will focus on the upcoming quarterly results and punish the stock if estimates are missed or continue to keep their sight on the expected rise in chip prices and that the company seems to have a cushion in the current challenging scenario.

  • The consensus earnings estimate for the fiscal second quarter stands at $0.37 per share, representing a 78.4% year-over-year decline.
  • Revenue is projected at $4.69 billion, a 19.7% decline from the same quarter a year earlier.

Why it matters: Although the projected revenue represents a steep decline, it is better than the 35% downturn reported by Micron in the first quarter of 2020. Prices of both DRAM and NAND flash-memory chips are likely to have bottomed and are expected to spike this year, even as the world struggles with the coronavirus pandemic. This is partly because the supply glut has eases, with all chip manufacturers drastically reducing their production.

On the other hand, Micron has significant exposure to China, which is recovering from the coronavirus and returning to normalcy. With as much as 25% of Micron’s revenue coming from China, the increase in demand from this region is expected to offset the likely decline in demand from the EU and the US, where the outbreak is yet to peak.

Recent stock performance: Shares of Micron have plummeted 40% in a period of a month. Even amid the broader sell off in the market, the stock has gained 16% in the last five trading sessions. While some investors may view this as a profit-taking opportunity, others may hold on to the company’s shares, given the longer-term prospects. Some may even buy the stock, as the current price represents an attractive entry point.

The Markets Today

     

UK stocks will be in focus today, ahead of major economic reports scheduled for release.

Context: London stocks closed higher on Tuesday, despite disappointing data from the UK. Investor sentiment had been lifted by hopes stemming from the US Federal Reserve’s massive stimulus package.

Details:The UK reported a strong drop in its business activity following the coronavirus outbreak. The IHS Markit/CIPS flash PMI (Purchasing Managers Index) dipped to 37.1 in March, from a reading of 53.0 in February. The result was far below market expectation of a 45.0 reading.

The UK government announced tighter restrictions on Monday, closing all shops, except those selling essentials commodities, and ordered people to stay at home. In the US, investors were still waiting for a $1.8 trillion rescue package to be cleared by the Congress. The FTSE 100 index had spiked 9.1% to close at 5,446 on Tuesday.

The UK has reported more than 8,100 coronavirus cases with around 420 deaths. The Total COVID-19 cases have exceeded 422,000 globally.

In corporate news, shares of Prudential jumped 21% as the company announced that it is looking to delay or scrap the US IPO of Jackson National Life Insurance. Games Workshop’s shares declined around 5% after the company said that the coronavirus has impacted its performance in March.

Why it matters: After the strong performance of UK’s stocks on the first day of lockdown, investors will be hopeful of the positive momentum to continue today. Markets are awaiting a basket of economic reports from the country, including inflation rate, producer prices, retail price index and CBI distributive trades.

What to watch: The Consumer Price Index, which fell 0.30% in January, is expected to rise 0.3% in February. UK producer prices are likely to rise 0.9% in February, versus a 1.1% rise in the previous month. The retail price index is projected to rise 2.5% in February, versus a 2.7% increase in January.

Other Markets: US indices closed higher on Tuesday, with the Dow, S&P 500 and the Nasdaq 100 rising 11.37%, 9.38%, and 8.12%, respectively.

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What else to watch today

     

Turkey’s business confidence and capacity utilization, Spain’s producer prices and industrial new orders, Germany’s IFO business climate index, Saudi Arabia's consumer prices, France’s initial jobless claims, Mexico’s retail sales, Brazil's current account, net payrolls and foreign direct investment as well as the US MBA mortgage applications, durable goods orders, house price index and crude oil stocks change.