It has been about a month since the last earnings report for Micron (MU Quick QuoteMU - Free Report) . Shares have added about 6.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Micron due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Micron Q4 Earnings Top, Issued Bleak Q1 View

Micron Technology reported stellar results for fourth-quarter fiscal 2020, wherein its top and bottom lines surpassed the respective Zacks Consensus Estimate and marked solid year-over-year improvements.

The company’s fiscal fourth-quarter non-GAAP earnings per share of $1.08 cents beat the Zacks Consensus Estimate by 8%. Moreover, non-GAAP earnings registered year-over-year growth of approximately 93%. Quarterly revenues of $6.06 billion outpaced the consensus mark of $5.91 billion and increased 24.4% from the year-ago quarter’s $4.87 billion.

Nonetheless, the company issued dismal outlook for first-quarter fiscal 2021.

Q1 Outlook

The company anticipates revenues of $5.2 billion (+/-$200 million) for the quarter. The Zacks Consensus Estimate for fiscal first-quarter revenues is pegged at $5.44 billion.

For the fiscal first quarter, Micron expects non-GAAP gross margin of 27.5% (+/-100 bps). Operating expenses on a non-GAAP basis are likely to be $825 million (+/-$25 million).

Earnings per share are anticipated to be 47 cents (+/-7 cents). The consensus mark is pegged at 73 cents.

During its fiscal fourth-quarter conference call, Micron revealed that it has not obtained license from the U.S. government to sell its chips to China’s Huawei Technologies. Therefore, the memory chip maker anticipates the shipment ban to erode its sales in first and second quarters of fiscal 2021. Notably, chip sales to Huawei accounted for nearly 10% of the company’s fourth-quarter fiscal 2020 total revenues.

Revenue Details

DRAM revenues of $4.37 billion, accounting for 72% of total revenues in the fiscal fourth quarter, grew 29% year over year and 22% sequentially. Bit shipments rose in the mid-20% range sequentially, while ASPs decreased in the lower-single-digit percentage range.

NAND revenues of $1.53 billion, representing 25% of the total top line, were up 27% on a year-over-year basis but declined 8% quarter on quarter. While NAND ASP decreased in the upper single-digit percentage band, shipments remained flat sequentially.

Business-unit wise, revenues of the computing and networking business (CNBU) unit surged 59% from the year-ago quarter and 36% sequentially to $3.02 billion. This sequential growth was mainly driven by continued strength in the Cloud and Client segments owing to the work-from-home infrastructure build-out by organizations. Strong demand for gaming consoles also drove CNBU’s revenues in the quarter.

Revenues of $1.46 billion from the Mobile Business Unit (MBU) climbed 4% on a year-over-year basis but fell 4% sequentially.

The Embedded Business Unit (EBU) revenues logged $654 million, down 7% from the year-ago period and 3% from the previous quarter, primarily due to reduced demand from the automotive sector.

Revenues from the Storage Business Unit (SBU), comprising SSD NAND components and 3D XPoint totaled $913 million, up 8% year over year but down 10% sequentially.

Margins

Micron’s non-GAAP gross profit of $2.11 billion surged 41.6% year on year and 17% sequentially. Non-GAAP gross margin improved from 31% in the year-ago quarter to 35%. Moreover, gross margin expanded 200 basis points (bps) sequentially.

Underutilization charges at the Lehi Lab had a negative impact of nearly $135 million or 220 bps. Nonetheless, sequential growth in gross profit and margin was chiefly aided by solid DRAM cost execution.

Micron’s non-GAAP operating income of $1.3billion soared 87.6% from the year-ago quarter’s $694 million. Non-GAAP operating margin expanded from 14% to 21%. In addition, non-GAAP operating profit and margin improved 300 bps on a sequential basis.

Balance Sheet and Cash Flow

The company exited the reported quarter with cash and short-term investments of $8.14 billion compared with the $8.66 billion recorded at the end of the prior quarter.

Micron’s long-term debt slightly increased to $6.37 billion from the $6.36 billion witnessed at the end of the fiscal third quarter.

The company generated operating cash flow of $2.3 billion during the fiscal fourth quarter and free cash flow of $111 million. During fiscal 2020, the company generated operating and free cash flows of $8.3 billion and $361 million, respectively.

The company repurchased shares worth $41 million in the reported quarter. During fiscal 2020, Micron repurchased $176 million worth of its common stocks.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -38.99% due to these changes.

VGM Scores

At this time, Micron has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Micron has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.