Micro Machine (MU)

MU is expected to report earnings tonight after the close. There is a conference call scheduled for 4:30PM. 

Q2 Capital IQ consensus calls for EPS of $0.86 (versus ($0.05) last year) on revenue of $4.651 bln (+58.5% YoY). 

• The current consensus is within the company's guidance range of $4.6-4.7 billion. 
• Micron's EPS guidance is at $0.86 +/- a few cents. The company raised its EPS guidance at a Morgan Stanley conference on March 2nd, and raised the midpoint of its revenue guidance.
• 2015 and early 2016 proved to be a tumultuous year as a slowdown in demand, driven largely by the decline of the PC industry (Now less than 20% of MUs business), impacted the company as it was restructuring. 
• Comments from MU surrounding demand in the company's newly targeted areas of server, mobile, automotive, and Industrial machine-to-machine areas bode well as does the pricing improvements seen industry wide.

DRAM and Margins

• MU says it currently expects 2017 DRAM bit supply growth in the 15% to 20% range. Its long-term bit demand growth forecast of ~20% to 25%. 
• The company's overall consolidated GAAP gross margin of 25 percent for the first quarter of fiscal 2017 was 7 percentage points higher compared to the fourth quarter of fiscal 2016 primarily due to manufacturing cost reductions and increases in DRAM average selling prices. 
• Margin Guidance: Looking ahead to the second quarter, the company sees Q2 gross Margin in the range of 37-38%. CO's margins guidance was raised at the Morgan Stanley conference on March 2. 

Options Activity

Based on MU options, the current implied volatility stands at ~ 46%, which is 64% higher than historical volatility (over the past 30 days).The options market is currently pricing in a move of ~7% in either direction by weekly expiration (Friday).

Options activity has been aggressively bullish in the last few weeks with multiple strikes and calls bought. 

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MU Options Activity

Technicals:

MU shares have outperformed the S&P so far this year with MU raising by 19% vs 5% gain in the index.  Resistance sits near the $26.50-26.75 area, while support hangs near $25.75-26.00.

TRADE: Buy APR 29C AND/OR WDC APR 80C

Hail Mary (UAA)

Under Armour (UAA, UA) is set to report Q4 results tomorrow before the market opens with a conference call to follow at 8:30am ET. UAA is expected to report results at 7:15am. Last quarter the co provided its Q3 results at 7am and then provided prepared conference call remarks on its website shortly after the earnings release. Current Capital IQ consensus stands at EPS of $0.25 on revenues of $1.409 bln. 

Guidance

• Expects Q4 revenues to grow ~20%. (Approx $1.404 bln, Capital IQ consensus $1.409 bln) 
• Gross margin is expected to be relatively flat versus prior year.
• Expect operating income in the range of $186-191 million, representing growth of 5-8% y/y.
• Reaffirmed guidance for FY16, seeing FY16 revs of $4.93 mln vs. $4.94 bln Capital IQ Consensus Estimate. 
• Reaffirmed 2016 operating income of $440 million to $445 million.
• On track to achieve 2018 revenue goal of $7.5 billion and expect to grow full year revenues consistently in the low-20s in both 2017 and 2018.
• Lowered its 3-year CAGR for EBIT to the mid-teens from 23%.
• Expect annual operating income growth in the mid-teens in each of the next two years; Focus is on investing to 'get big fast'.
• North America Apparel growth is slowing across the industry. While expect to continue to significantly outpace the apparel industry, the growth rate going forward will be less than expected from Investor Day in 2015.
• Will invest more heavily in areas that can grow faster such as footwear, direct-to-consumer and international as well as more aggressively enter Sport Fashion, like UAS, and the much broader sports lifestyle category.

Key Issues

• Border Tax- UAA would be seen as a big loser if a border tax was enacted. It currently has approx 85% of its sales in the United States. It produces approx 65% of its products overseas in China, Jordan, Vietnam and Indonesia. 
• Valuation- UAA is trading at approx 42x Forward P/E compared to 20x for Nike (NKE). 

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