On Wednesday night, Micron Technology (MU) reported fiscal second-quarter earnings of $ 1.71 per share on revenue or $ 5.84 billion. Both results exceeded expectations by a small margin.
Despite guiding third-quarter revenue and EPS below expectations, the shares have traded higher. How soft was guidance? Management foresees revenue around $ 4.8 billion and EPS between $ 0.75 to $ 0.95. Prior consensus was revenue of $ 5.33 billion and earnings of $ 1.23 per share.
That's a tough cut, especially on the earnings front, so why did it stock higher on Thursday? the company.
Micron hasn't shied away from the growing inventory and dropping prices it has faced. The company intends to idle 5% of its DRAM and reduce NAND wafer starts at 5%. Whether this first move is not known for at least several weeks, but it is a start in the right direction.
If the company cut too drastically, then it could get stuck playing catch-up and potentially lose business for multiple quarters. It's probably unfair to call the current approach proactive, but I believe these are real-time decisions rather than simple reactions. As data center normalize, business could return to stronger periods in the second half of the year. Fortunately, the demand for data centers is demanding as the demand for cloud computing continues
Micron repurchased 21
The company intends to put at least 50% of its free cash flow into buybacks. While it had an operating cash flow of $ 3.44 billion last quarter, the net free cash flow was closer to $ 1 billion. Given the size of the company, investors are looking at buybacks that are going to equal 1-2% of the company's market cap. It's a decent "dividend replacement," but I don't see it as a reason to own.
Like most other names in the market, MU shares have moved higher from the Christmas Eve slaying. Still, Micron bulls are likely to run into the Micron bulls of Christmas suits. Well, more like Halloween fits, but buyers of the stock in September and October who have succeeded through the drop will likely be ready to sell in the next week or two simply to escape breakeven.
A weekly close above $ 45 should be enough to drag in new momentum buyers and send shares higher by 10% – 12.5%. I would wait for that break before buying. The downside here is a return to $ 40. Should that fail to keep, then Micron could be staring at the $ 35 level before finding aggressive buyers.
We should have a better feel Friday if this is a buy. A close, Friday, above $ 45 would be a trigger for a long entry, but until that time, I prefer to wait and make certain this move is real and not a simple, short-term relief rally because guidance wasn't like terrible as some investors feared.
Get an email alert each time I write an article for Real Money. Click the "+ Follow" next to my byline to this article.