NVDA - Micron Q3: Good Quarter Bad Cash-Flow (Rating Downgrade)

2024-07-01 04:13:14 ET

Summary

• Micron beat revenue and earnings expectations in fiscal Q3 2024, but stock price slumped in extended-hours trading.
• Concerns over lower-than-expected cash flow and just in-line guidance for the current quarter led to a downgrade in rating.
• Despite strong revenue growth driven by AI demand, cash flow underperformance and potential risks warrant a more cautious approach.
• I am downgrading the stock from a strong buy to a buy.

Investment Thesis

Micron ( MU ) released their fiscal Q3 2024 results on Wednesday, reporting revenue and earnings that beat the expectations held by analysts. However, the stock price slumped by 6.5% in extended-hours trading following this earnings release. I believe the primary reasons for this negative market reaction are the lower-than-expected cash flow and the just in-line guidance for the current quarter.

As I have been closely following Micron's cash flow performance, I somewhat agree with the market’s reaction, and find these recent developments concerning. Operating cash flow for the quarter came in at $2.48 billion , falling short of the $3.24 billion estimate. This miss is especially important considering how important it is to consider cash flow when assessing a company like Micron's financial health and future growth....

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