Micron Technology (MU) just ripped the cover of the proverbial ball with their first quarterly earnings report of 2014. The stock is currently up over 11% in after-hours trading. Here's why it surged going into the report and why it will keep going higher after the market reopens.
The information below is derived from data submitted to the Estimize platform by a set of Buy Side and Independent analyst contributors.
The American multinational semiconductor company reported 77c EPS when Wall Street was only expecting 43c and the company's FQ1 2014 revenue exceeded the Street's expectations by over $300 million. Contributing buy-side and independent analysts at Estimize had forecast an only slightly better profit consensus of 46c EPS.
While the EPS and revenue numbers reported are both outstanding, Micron Technologies isn't even close to done growing. This company has strong earnings power now and both EPS and revenue are growing at an extremely fast rate. Notice the slope of the quarterly EPS and revenue graphs below.
Both of these graphs are skyrocketing. Over the past 2 quarters, they have both been accelerating too, growing at a nonlinear rate. The following table shows the quarterly year-over-year growth rates.
Throughout the previous 2 years, Micron Technology has increased its year-over-year EPS growth in each and every quarter. Wednesday's report also indicated that revenue grew 120% year over year. These massive fundamental growth rates are the reason why Micro Technology stock more than tripled in 2013.
While nobody saw Wednesday's gigantic numbers coming, at Estimize we have created an aggregated data set from buy-side and independent analysts to get a consensus that reflects the market's true expectations. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, students, and non professional investors, the Estimize community has built a data set that is up to 69.5% more accurate than Wall Street, and they predicted that MU would beat the Street on earnings.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Our quantitative research has shown that if you benchmark against the market there is a 3 day upwards pre-earnings drift correlated with when the Estimize EPS consensus is higher than Wall Street's. On Wednesday, the stock price surged going into the report as expected, this is reflected by the large green candle at the far right side of the chart below.
While MU is almost certainly going to open higher Wednesday, we can still expect the stock price to push up from there. In addition to the pre-earnings drift before the report, there is also a post-earnings drift associated with how a firm actually reports relative to the Estimize consensus which has been confirmed by an independent academic study. If you benchmark against the market when a company beats the Estimize consensus, the stock price will drift up on average over the next 3 days after the market reopens. Just look how Micron Technology did on Wednesday.Disclosure: No positions