Micron Stock (NASDAQ:MU) is expected to report its Q2 FY’25 earnings on March 20. The consensus forecast is for earnings of $1.43 per share, up from $0.42 in the year-ago period, while revenues are estimated at $7.92 billion, up a solid 36% compared to last year. We expect results to be driven by strong demand from AI data centers, which require more expensive high-bandwith memory (HBM). Micron is in the process of scaling up production of its new HBM3E memory, which goes into Nvidia’s latest GPU chips. The new memory chips have a lower power consumption and higher capacity, making them ideal for power-efficient and high-performance AI workloads. Micron has $112 billion in current market capitalization. Revenue over the last twelve months was $29 Bil, and it was operationally profitable with $4.6 Bil in operating profits and net income of $3.9 Bil. While a lot will depend on how results stack up against consensus and expectations, understanding historical patterns might just turn the odds in your favor if you are an event-driven trader. Related: Could Recession Pull Nvidia Stock Down To $60?
There are two ways to do that: understand the historical odds and position yourself prior to the earnings release, or look at the correlation between immediate and medium-term returns post earnings and position yourself accordingly after the earnings are released. That said, if you seek upside with lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
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Micron Technology’s Historical Odds Of Positive Post-Earnings Return
Some observations on one-day (1D) post-earnings returns:
- There are 19 earnings data points recorded over the last five years, with 9 positive and 10 negative one-day (1D) returns observed. In summary, positive 1D returns were seen about 47% of the time.
- However, this percentage decreases to 42% if we consider data for the last 3 years instead of 5.
- Median of the 9 positive returns = 7.2%, and median of the 10 negative returns =-4.2%
Additional data for observed 5-Day (5D), and 21-Day (21D) returns post earnings are summarized along with the statistics in the table below.
Correlation Between 1D, 5D, and 21D Historical Returns
A relatively less risky strategy (though not useful if the correlation is low) is to understand the correlation between short-term and medium-term returns post earnings, find a pair that has the highest correlation, and execute the appropriate trade. For example, if 1D and 5D show the highest correlation, a trader can position themselves “long” for the next 5 days if 1D post-earnings return is positive. Here is some correlation data based on 5-year and 3-year (more recent) history. Note that the correlation 1D_5D refers to the correlation between 1D post-earnings returns and subsequent 5D returns.
Learn more about Trefis RV strategy that has outperformed its all-cap stocks benchmark (combination of all 3, the S&P 500, S&P mid-cap, and Russell 2000), to produce strong returns for investors. Separately, if you want upside with a smoother ride than an individual stock like Micron Technology, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
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