Top Analysts Join Earnings Conversation: GameStop Corp. (GME), Micron Technology, Inc. (MU)


GameStop Corp. (NYSE:GME) and Micron Technology, Inc. (NASDAQ:MU) delivered earnings yesterday evening and the stocks promptly boomeranged in opposite directions. Two of the best performing analysts on the Street are subsequently chiming in on GameStop’s big miss and Micron’s ace quarterly results, albeit one more confident on long-term appeal and the second boosting the price target on back of stellar growth prospects. Let’s dive in:

GameStop’s Appeal to Long-Term Opportunity on Pull-Back

GameStop shares are falling 12% after a rocky fiscal fourth quarter. Though the video game retailer failed to impress shareholders, who promptly have been running for the hills in the weak print’s aftermath, top analyst Colin Sebastian at Baird makes a bullish case for the long-term.

Therefore, despite guidance for fiscal 2017 that underperformed consensus projections, the analyst reiterates an Outperform rating on shares of GME with a $24 price target, which represents a just under 14% increase from where the stock is currently trading.

For the fiscal fourth quarter, GME posted a 16.3% dip in same-store-sales, which does not surprise the analyst when taking under account holiday channel checks coupled with reduced forecasts. The waning SSS draws from “weak” new game title sales as well as “aggressive hardware promotional activity,” notes the analyst, who adds he still believes 28% year-over-year expansion in Collectibles coupled with a 44% year-over-year hike in Tech Brands “remain encouraging as new store openings/category growth support the company’s ongoing diversification.”

On a positive note, despite a bit of a quarter-over-quarter decrease in Collectibles gross margins, in general gross margins saw an increase thanks to an advantageous “stable profitability” amid the video game segment. Negatively, 2017 EPS outlook for $3.10 to $3.40 fell meaningfully under consensus expectations of $3.73 (as well as the analyst’s estimate of $3.65), with same-store-sales anticipated in either the -5% to flat year-over-year range.

Sebastian elaborates,”We note that $0.25 of the EPS headwind results from higher expected tax rates, compounded by investments in new category growth, some deleverage in video game sales, and higher interest expenses.” Furthermore, projected free cash flow (FCF) of $300 million throughout this year marks a “steep decline” from last year’s $400 million. However, the analyst puts stock in GME’s capital allocation strategy, which gives him hope thanks to over $150 million in dividends, as well as the video game retailer’s development of its collectibles and tech grand segments.

“Diversification strategy in focus as game segment remains under pressure. GameStop reported F4Q16 results in line with recently lowered expectations; although, as we previewed, F2017 outlook fell short of consensus estimates reflecting dual factors of new category investments and declining physical game sales. Nonetheless, management reaffirmed the 2019 outlook for non-physical-gaming profit contribution. While the lack of quarterly guidance and lower FY FCF forecast will also weigh on shares, we believe there for appeal to longer-term/value-oriented investors on the pullback,” Sebastian concludes.

Colin Sebastian has a very good TipRanks score with a 76% success rate and a high ranking #15 out of 4,552 analysts. Sebastian yields 19.5% in his annual returns. When recommending GME, Sebastian realizes 13.5% in average profits on the stock.

TipRanks analytics exhibits GME as a Strong Buy. Out of 15 analysts polled by TipRanks in the last 3 months, all 15 are bullish on GameStop stock. With a return potential of nearly 17%, the stock’s consensus target price stands at $34.77.

Micron’s Growth Momentum is on a Roll

Micron shares are rising almost 10% after delivering a meaningful outclass yesterday with its second fiscal quarterly print, and guidance for a strong third fiscal quarter to follow. As the content gains keep surging, top analyst Rajvindra Gill cheers the chip giant’s “strong growth across the board.”

On the heels of robust earnings, the analyst reiterates a Buy rating on MU while lifting the price target from $42 to $50, which represents a 72% increase from where the shares last closed.

For the second fiscal quarter, MU brought in $4.65 billion in revenue, marking a 17% quarter-over-quarter rise, which aligned with consensus expectations of $4.64 billion. Revenue’s stellar performance stems from a 21% quarter-over-quarter climb in DRAM ASPs coupled with an 18% quarter-over-quarter jump in NAND sales volume. Meanwhile, considering consensus called for 36.4% for quarterly gross margins, MU’s 38.5% impressed shareholders, riding a wave of ideal DRAM pricing as well as reigned in manufacturing expenses in NAND and DRAM. Additionally, non-GAAP EPS of $0.90 outperformed consensus of $0.83.

Not only did the chip giant excel in its second fiscal quarter results, but its guide for the third fiscal quarter of 2017 hit meaningfully above consensus forecasts, with revenue set to reach $5.2 to $5.6 billion, GMs to 44% to 48%, OPEX to $560 to $610 million, as well as non-GAAP EPS to $1.43 to $1.57.

Overall, “Micron posted a significant beat and raise quarter driven not only by a strong DRAM pricing environment (APS up 21% Q/Q) and NAND demand (bit shipment growth 18% Q/Q) but also by cost reduction measures via 20nm/1X DRAM ramp, and 3D NAND conversions (DRAM cost/bit down (-6) Q/Q and NAND cost/ bit (-15% Q/Q). Compared to the 2014 cycle, the current DRAM pricing and demand strength is broad based (enterprise and datacenters rather than solely PCs) with growth stemming from content gains rather than primarily volume. On the NAND side MU is executing well on 3D NAND conversion and experiencing strong demand for SSD products via the current HDD replacement cycle. With long lead times on equipment we believe that supply will remain tight in the near term. Net, we believe Micron is worth 10x P/E on our 2018 estimate,” Gill surmises.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, top five-star analyst Rajvindra Gill has achieved a high ranking of #35 out of 4,552 analysts. Gill upholds a 66% rate and earns 18.1% in his annual returns. However, when recommends MU, Gill forfeits 29.3% in average profits on the stock.

TipRanks analytics indicate MU as a Strong Buy. Based on 16 analysts polled by TipRanks in the last 3 months, all 16 rate a Buy on Micron stock. The 12-month average price target stands at $34.57, marking a nearly 21% upside from where the stock is currently trading.

More stocks covered by top performing analysts can be foundĀ here.

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