Micron (MU) Earnings: Is a Worst-Case Scenario Already Priced In?

Our preview of the upcoming week's earnings reports include Micron Technology (MU), Bed Bath & Beyond (BBBY) and CarMax (KMX).

Micron Technology (MU, $74.05) steps up to the earnings confessional this week, and it's hoping for a much more productive post-earnings reaction than what it experienced a quarter ago.

In June, on a conference call with analysts, Micron Technology (MU, $74.05) CEO Sanjay Mehrotra cited "cost headwinds" the chipmaker is facing in fiscal 2022 due to a "strategic portfolio migration toward more advanced and higher-value products." Mehrotra also pointed to efforts to increase MU's resilience to supply chain disruptions as a factor in rising costs.

In reaction, MU shares slid 5.7%, even as the company reported higher-than-anticipated earnings and revenues for its fiscal third quarter and gave upbeat guidance for its fiscal fourth quarter.

The stock has just extended its slide since that report. An early August note from Susquehanna Financial Group analysts Christopher Rolland and Duksan Jang suggesting the lead times for the semiconductor industry are now in the "danger zone" only created bigger headwinds.

MU is in negative territory for the year-to-date, but Susquehanna analyst Mehdi Hosseini isn't too concerned. He thinks the market has just been pricing in a "worst-case scenario" for near-term average selling prices (ASP) trends, which appear to be flattening for DRAM and NAND chips. He argues that the semiconductor stock "already reflects this and is actually setting up to offer a compelling risk/reward profile into 2022."

Hosseini, who has a Positive (Buy) rating on MU to report fiscal fourth-quarter earnings of $2.32 per share after the Tuesday, Sept. 28, close. That is just below analysts' average estimate for earnings of $2.33 per share (up 116% from the year prior). He forecasts revenues of $8.2 billion for MU – in line with the consensus estimate and representing 35.7% year-over-year (YoY) growth.

Raymond James analysts Chris Caso and Melissa Fairbanks are also bullish heading into Micron's quarterly report. They currently maintain a Strong Buy rating on the stock, saying the recent selloff is "about investor fears of pricing pressure later this year," which they don't believe is supported by the data.

Additionally, Micron's early August announcement of a first-ever quarterly dividend payment "is evidence of management confidence that Micron has become a more stable business."

Analyst: "Wildcards" Remain for Bed Bath & Beyond Earnings

Bed Bath & Beyond (BBBY, $22.95) jumped more than 11% on the last trading day of June after the home furnishings retailer reported higher-than-expected revenues for its first quarter. Since then, the stock has been trending lower to trade more than 30% below its June 30 close.

However, Baird analysts Justin Kleber and Peter Benedict see this pullback as creating an attractive risk/reward setup in the meme stock

Yes, rising cost pressures and supply chain disruptions represent "wildcards" for BBBY's Q2 results, but "firm sector demand trends, leverage to back-to-college and wedding activity and rising owned brand penetration have us modeling Q2 results in line with guidance," they note.

The analysts currently rate BBBY shares at Neutral, which is the equivalent of a Hold, saying "sustained signs of market share recapture are likely required to support a rerating in shares." Nevertheless, they "lean bullish on the long-term transformation opportunity."

As for Bed Bath & Beyond's upcoming report: analysts, on average, are looking for earnings per share (EPS) of 52 cents (+4% YoY) on revenues of $2.1 billion, which is down 22% from the year-ago period.

Pros See Modest Q2 Earnings Growth for CarMax

CarMax (KMX, $144.42) earnings are also due out ahead of the Sept. 30 open. The company has been benefiting from a red-hot used car market, sending its stock up 53% for the year-to-date.

Not surprisingly, Wall Street pros are upbeat on KMX heading into the quarterly report. Of the 17 analysts following the stock tracked by S&P Global Market Intelligence, nine say it's a Strong Buy and three call it a Buy. This is compared to four Holds and one Sell.

Argus Research analyst Kristina Ruggeri is one of those with a Buy rating on KMX. 

"CarMax is well-positioned for the future of car buying," she says. Specifically, its "omnichannel approach, which integrates online and in-store purchasing, gives customers the option of shopping for, financing and purchasing a car completely online. This differentiates CarMax from online-only and in-store-only retailers and has enabled it to boost market share."

Wedbush analysts Seth Basham and Nathan Friedman (Neutral) "lean positive on KMX" heading into the company's second-quarter report, even amid tough year-over-year comparisons. The pair is most optimistic about gross profit, where they see "upside potential" amid a strengthening price environment.

They also highlight "a lower rate of discounting from the list price to sale price and continued strength in sourcing from consumers" as positives.

For KMX's second quarter, the pros are calling for EPS of $1.89 (+5.6% YoY) and revenues of $6.9 billion, which is up 27.8% from the year-ago period.

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