Micron Technology (MU) reported the firm's fiscal third quarter performance on Wednesday evening. The firm posted adjusted EPS of $1.88, which beat Wall Street by a rough 17 cents. Revenue generation printed at $7.42, also a solid beat, and good enough for year over year growth of 36.4%. Backing out of all adjustments, GAAP EPS hit the tape at $1.52.
Behind those headline numbers, Cash flow from operations hit $3.56 billion, up from $3.06 billion for the fiscal second quarter, and up from $2.02 billion from the one year ago period. Adjusted gross margin increased sequentially from 32.9% of revenue to 42.9% as the embedded business exceeded $1 billion for the first time ever driven by the automotive and industrial businesses.
So, why are the shares a bit weaker on Thursday morning? Two reasons. One... Capital expenditures total $2.04 billion, well above the $1.8 billion that Wall Street expected. (This resulted in adjusted free cash flow of $1.52 billion.) Two... Micron expects both NAND and DRAM supplies to remain tight into calendar year 2022.
For the firm's fiscal fourth quarter, revenue is expected to land close to $8.2 billion, give or take $200 million. Adjusted gross margin is looking around 47%, give or take 1%. Adjusted operating expenses are expected to hit $900 million, plus or minus $25K... and adjusted EPS is seen at $2.30, with a dime's worth of wiggle room. Industry consensus had been for $2.15.
For calendar year 2021, Micron expects industry wide DRAM bit demand growth to be well above 20% with supplies still below demand. The firm expects its own DRAM bit supply growth to fall short of industry demand. As for NAND, bit demand growth for the industry is expected to be in the mid-30% 's growth-wise, with supply outpacing demand. However, Micron expects its own NAND bit supply growth to fall below that of the industry.
The Balance Sheet
Total current assets have grown considerably over three months driven by growth in the cash position after selling assets in Utah to Texas Instruments (TXN) , as well growth in accounts receivable. There has been no significant growth in current debt (or long-term debt for that matter). Current liabilities remain stable. Total assets simply dwarf total liabilities. The balance sheet is in better than decent shape.
On that note, and not really part of today's discussion, I did notice that inventories have come in slightly lower for several successive quarters, and that makes sense given that there is a global chip shortage. I would expect that once the industry works their way through this pandemic/post-pandemic period, that chip makers of all types will move from a "just in time" model to a "just in case" model. That does not make me not like this stock or any of the others that I am invested in, but one does need to understand that not getting caught short like that ever again will shave margin.
Readers will note that Micron has been stuck in a basing pattern all year. What is interesting right now, is that MU has recently taken both it's 21 day EMA at $81.37, and it's 50 day SMA at $82.37. The shares closed at $84.98 on Wednesday afternoon and were trading around $82.88 in Thursday morning pre-opening trade. These levels will be tested during Thursday' regular session. For me, should they hold, that is an "add" signal as I am already long a partial position in this name.
Target Price: $116
Add: On successful defense of 21 day EMA and 50 day SMA (be patient)
Panic: $75 (200 day SMA)