Why Micron Technology Might Be Able To Continue Its Absurd Growth

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 |  About: Micron Technology Inc. (MU), Includes: SMH, SOXL, SOXS, USD
by: Leigh Drogen

Micron Technology Inc. (NASDAQ:MU) is set to report FQ2 2014 earnings after the market closes Thursday, April 3rd. Micron Technology is an American semiconductor company which has been all over the news lately. Micron received a ton of attention in March when a pseudonymous blogger on Seeking Alpha allegedly leaked that hedge fund manager, David Einhorn of Greenlight Capital, had added a position in the company. Einhorn has since announced that he has identified the leaker and has handled the matter privately. Click to enlarge

Over the past year Micron Technology stock has been on fire and it continues to be of the most talked about companies in the hot semiconductor industry. In the past 365 days MU shares have climbed from $9.88 to $24.24, a massive 145%. This quarter Wall Street is optimistic about the company, expecting MU to report 92% revenue growth compared to FQ2 last year and 61c EPS compared to a loss of 28c per share last year. Here's what investors are expecting from Micron on Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.Click to enlarge

(Click Here to see Estimates and Interactive Features for Micron Technology)

The current Wall Street consensus expectation is for Micron Technology to report 61c EPS and $3.993B revenue, while the current Estimize.com consensus from 35 Buy Side and Independent contributing analysts is 77c EPS and $4.052B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Micron Technology to beat the Wall Street consensus on EPS and revenue by a large margin.

Over the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Micron Technology's EPS and revenue 4 and 3 times respectively. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

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. In this case we are seeing a very large difference between the two groups' expectations.Click to enlarge

The distribution of estimates published by analysts on the Estimize.com platform range from 54c to $1.07 EPS and from $3.750B to $4.500B in revenues. This quarter we're seeing a wider than usual distribution of estimates on Micron Technology.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings. Click to enlarge

Over the past 4 months the Wall Street EPS consensus rose from 55c to 61c, while the Estimize consensus also increased from 71c to 77c. Meanwhile the Wall Street revenue forecast shot up in January from a low of $3.701B to $3.993B before the report, while the Estimize forecast also pushed higher from $3.970B to $4.052B. Timeliness is correlated with accuracy and upward analyst revisions at the end of the quarter are often a bullish indicator. Click to enlarge

The analyst with the highest estimate confidence rating this quarter is turbinecity, who projects 68c EPS and $3.991B in revenue. turbinecity was our Winter 2014 season winner and is ranked 6th overall among over 4,000 contributing analysts. Over the past 2 years, turbinecity has been more accurate than Wall Street in forecasting EPS and revenue 59% and 56% of the time respectively throughout 1,600 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, turbinecity is making a bearish call, expecting Micron Technology to miss the Estimize community's expectations on both the top and bottom line.

Micron Technology stock has done very well in the past year and it continues to be widely talked about. This quarter contributing analysts on the Estimize.com platform have significantly higher expectations than Wall Street. If MU shares are going to continue growing at the absurd rate they have experienced in the past year the company will need to satisfy the expectations of the market on Thursday.

Disclosure: None