Investors are sometimes hard to please. Micron (MU) delivered the goods in its latest quarterly statement, but the shares trended lower in the subsequent session as the focus turned to the unexpected higher CapEx (capital expenditure) ahead.
In FQ3, Micron generated revenue of $7.42 billion, a 36.4% year-over-year increase and amounting to a beat over the Street’s forecast by $160 million. Non-GAAP EPS of $1.88 also came in ahead of the Street’s estimate – by $0.17.
There were other impressive metrics. Cash flow from operations grew by 76% from the same period last year, and NAND revenue hit a new record – boosted by mobile MCP, consumer SSD, and client SSD sales.
Micron’s guidance was also better than the consensus estimates. For FQ4, revenue is expected to come in between $8 to $8.4 billion vs. consensus at $7.89 billion, while the $2.20-2.40 EPS forecast is higher than the $2.14 the Street had guided for.
For BMO’s Ambrish Srivastava, some parts of the report were more obvious than others.
“Micron could not have articulated our own positive thesis any better in terms of a constrained environment into 2022 in both DRAM and NAND (we did not call out the latter), driven in part by the transition to DDR5 and the accompanying requirement for a higher die size,’ said the 5-star analyst. “Conversely, while to be expected at some point, as competitors begin to ramp EUV for DRAM, what we did not see coming was the timing of the EUV technology spend starting in FY22, and the consequent large increase in CapEx for FY22.”
The last part might explain the post-earnings slump. As the company “rolls out the initial EUV infrastructure and deployment for its 1-gamma node” – i.e., upgrades its chipmaking technology – “capital intensity” is expected to increase to the mid-30’s percentage range. What this means is that FY22 CapEx will now be approximately $13 billion, higher than both BMO’s $9.6 billion estimate and the Street’s $10.4 billion forecast.
That said, while the layout is higher than expected, Srivastava “recognizes that this is a technology spend that Micron has to make in order to remain competitive with its DRAM peers.”
All in all, then, there’s no change to Srivastava’s recently upgraded Outperform (i.e., Buy) rating or $110 price target, implying upside of 36% from current levels. (To watch Srivastava’s track record, click here)
The Street’s average price target is higher still; at $119.5, the figure suggests shares will gain 47% in the year ahead. Most analysts remain in the memory giant’s corner; the stock has a Strong Buy consensus rating, based on 15 Buys vs. 4 Holds. (See Micron stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
