News and analysis

The parcel delivery operator missed quarterly consensus estimates but its market value was soaring by nearly 8.75% to $300 per share in extending trading during the Thursday night, thanks to announcing plans to spin off its freight trucking division through the capital markets with an intention to create a new publicly traded company. The stock is knocking the $300 door for the fourth time in six months, but each time bullish attacks went awry leading to a larger or smaller retracement. What will be the developments now it's hard to say based on current fundamentals, but it would be useful to look more carefully at the investing crowd's moves in the vicinity of this psychologically important band, $300 plus or minus $10 to $15 per share.

FedEx reported both revenue and profit lines for the previous quarter mostly in-line with average expert estimates. This was a small step forward compared to the numbers three months ago as the indications at the end of September sharply missed consensus bets ($3.6 for equity per share instead of $4.86 in Wall Street projections and $21.6 billion instead of nearly $22 billion in expert poll bets for the firm's sales). Now both the bottom and the top lines improved to $4.05 for equity per share on revenue of $22 billion. However, there is almost flat growth on an annual basis, with the last quarter still lagging well behind some much more successful quarterly results in 2021-2023. What is a good sign that FedEx also provided a higher forward guidance for fiscal 2025, with earnings ranging between $19 and $20 per share, which is an equivalent for $4.75 to $5.00 per average quarter. The Wall Street pool assumptions were limited to $19.75.

Markets hope for aggressive cost cutting during a complex restructuring. The permanent cost reductions from FedEx transformation program already released $2.2 billion. The process may become more effective when FedEx will divide itself into two independent businesses seeking for two different growth strategies, even if the two businesses may attempt to preserve commercial and operational synergies. The separation is reportedly to be done within the next 18 months and "in a tax-efficient manner for FedEx stockholders" and executed. By separation, FedEx would "respond to the unique dynamics of the LTL market,” said CEO Raj Subramaniam. The term LTL, in contrast with global parcelling, means "less than truckload" to refer to shipping services for relatively small loads of freight, typically below 15,000 pounds, which may lead to smarter cost efficiency. As a part of the single corporation, FedEx Freight subdivision was increasing its operating profit averagely by 25% a year over the previous 5 years. FedEx Freight will be the largest LTL carrier having the widest global network for transportation and the fastest delivery time within this segment.

Unlike the Biblical kingdom, which is divided within itself and will be destroyed, this business kingdom wants to be divided but still trying to remain a cart moving better. With still a shared brand of FedEx and their common base of customers, commercial agreements will be made between the two entities. Capital allocation optionality including advanced flexibility to invest in profitable growth and then returning capital to stockholders, distinct and compelling investment profiles with two separate public stock listings and distinct stockholder bases were remarked among the basic advantages. We will see sooner or later if this decision will actually allow the two companies to organize a more customized operational execution as well as more tailored capital allocations when unlocking a separate value (some sources say it could be up to $20 billion) for a freight branch of FedEx business., as it was declared, will it release more efficiency for FedEx Express and FedEx Ground businesses. And, finally, investors will see if it was true or not that FedEx Freight assets were probably not fully appreciated within FedEx.

Last night when the S&P 500 broad barometer of Wall Street performed a 3% downward correction on the U.S. Federal Reserve's halving its rate cut guidance for 2025, which temporarily tamped down overall bullish bets, shares of Micron Technology (MU) felt much more pressured by a self-estimated rather gloomy outlook. The stock of a well-known manufacturer of data storages like dynamic random-access memory (DRAM), flash memory "NOT AND" (NAND) chips to retain gigabytes of data when the power is off or solid-state drives (SSDs) is now about to hit its annual low after plunging by 15% in after-hours trading. My stock portfolio received an unpleasant blow to introduce a skunk at our cool garden party before Christmas. Indeed, if something has arrived (and, of course, I am talking about my perfectly predicted Broadcom's shine with a 35% jump within only 2 days), it usually means somewhere has departed, when it comes to Micron's sliding and some total value adjusting on Wall Street.

Well, if Broadcom (AVGO), NVIDIA, Meta, Google and some other giant and smaller techs are just providing most patient investors to buy more shares when asset prices are episodically rolling back from their fresh historical record highs, then it is probably a different story with Micron stocks. The inertia of a retreat may prolong a negative momentum in Micron for weeks or even for another two or three months before proper and eventual bottoming and then strengthening again amid its volatile landscape on charts.

The whole intrigue is that Micron issued its record-ever quarter in terms of both profit and sales. Its revenue for the last reporting period which ended on November 28 came out at $8.71 billion vs $8.68 of consensus estimates, $7.75 billion for the prior quarter and $4.73 billion for the same period in 2023. Its net income of $2.04 billion, or $1.79 per diluted share, compared to $1.73 according to an average analyst poll forecast, added 51.6% QoQ vs $1.18 per share in the previous quarter, not to mention a loss-making cycle between Q3 2022 and Q3 2023. Yet, the major difference between Broadcom's shining and Micron's disappointing case is that Micron's projection of its future revenue and profits fell deeply short of both the crowd's bets and expert predictions.

As for Broadcom, it sees continuing revenue growth from $14.1 billion in Q3 to $14.6 billion in the current quarter, with an implied profit of $1.51 per share vs an already historically record $1.42 per share in Q3. Yet, the most important part of Broadcom's projections was that its AI-based revenue would range from $60 billion to $90 billion from current customers by 2027, compared to the company's total revenue around $50 billion for the last four quarterly periods. One may easily understand why Broadcom was gaining so quickly but another chipmaker Micron is drowning.

Micron foresees its earnings at $1.43 per share, plus or minus 10 cents, in the nearest three months, which is severely lower than the Wall Street consensus of $1.91. Besides, the current quarter's revenue number was anticipated at $7.90 billion, plus or minus $0.2 billion, which also falls short of the widely expected $8.98 billion. Micron's official comments after earnings clearly pointed to lower memory chip prices and subdued demand for handsets and PCs in significant markets like China. Sanjay Mehrotra, president and CEO of Micron noted that consumer-oriented markets "are weaker in the near term", so that he anticipates "a return to growth" only "in the second half of our fiscal year". Despite he still remained optimistic about AI PC adoption "over time", Sanjay Mehrotra had to admit in prepared remarks that the PC refresh cycle "is unfolding more gradually", so that he expects "PC unit volume growth to be flattish in calendar (year) 2024, slightly below prior expectations," while research firm Gartner investigated that global PC shipments faced a 1.3% decline YoY to nearly 62.9 million units in Q3.

The stock has suffered a notable 44% significant decline, when initially dropping from its early June peak later in mid-summer, due to exactly the same kind of headwinds. At that stage, I was betting on a slowly and steadily refreshing cycle, yet the challenging situation aggravated instead. Frankly speaking, I would not advise anybody to rush into attempts of seeking instant dips for fresh buying of Micron shares. It would be better to wait some extra, despite I personally bought them before, sure at more expensive price, as I see it now. Later on, Micron may benefit from expected tax cuts and regulatory easing under the Trump administration, as the company is using a 1,400-acre mega campus territory to make DRAM chips in central New York state. Yet, the positive impact is by no means guaranteed and certainly will be postponed for better time.

Neo (NEO) has declined by 11.0% this week, trading at $15.70, significantly underperforming the broader market, where Bitcoin (BTC) is down just 0.3% to $102,489. The sell-off in risky assets followed the Federal Reserve's quarter-point interest rate cut, which was accompanied by hawkish commentary that spooked investors.

Neo's price dropped sharply by 10.5% in reaction to the Fed's announcement, bringing it close to the key support level at $15.00. This decline is a concerning signal for the market, as increased selling pressure could lead to a breakdown of this support. Should this occur, Neo's price might accelerate downward, with the next major target potentially around $10.00.

Here is one more undeservedly forgotten hero of the semiconductor era, which added nearly 50% to its market value from the beginning of the year until the first decade of July, but later reversed into a deep correction despite a continuous and notable quarter-by-quarter growth over the last five accounting periods. LRCX share price is now only about 7% exceeding its peaking levels of December 2021, still being 30% below its all-time highs of the summer 2024. Meanwhile, the Bank of America (BofA) freshly spotlighted Lam Research among its 6 key chip stocks to own for 2025 as a "flash-memory tool leader poised for capital expenditure recovery and impact resolution in China". Slower spending in domestic China previously formed a headwind for Asia-oriented chip companies. TD Cowen investment bank also called Lam Research "top pick", citing its "exposure to secular trends such as increasing memory content in storage, mobile and other applications and strong cash generation", although with a pretty moderate price target of $100.00, compared to varying around $78.5 at the moment.

A 25% to 30% resurgence in wafer fab equipment (WFE) investments over the next couple of years is forecasted by various analyst groups, as this technology has found a fast-increasing market in digital players and cameras, as well as solid-state drivers (SSD) for laptops, USB flash drives and all other devices which need large files to be frequently uploaded or replaced. Lam Research is exactly specializing in WFE. The firm reportedly commands over 30% of the capacity upgrade WFE market. Only leading-edge logic chips, which are used in artificial intelligence, quantum computing and machine learning may obtain a comparable pace of growth. Capital expenditures on necessary segments of WFE manufacturing dropped significantly in 2023 and 2024, with reinvestment supposedly falling up to 35%, but TD Cowen estimated it was going to rapidly recover up to 50% in 2025. Lam's customer support business division shows a 22% quarter-over-quarter surplus. The company's other diverse and innovative"4 Horsemen" technologies to generate more sales and to expand its part of the WFE market are GAA (Gate-All-Around), which is important for advancing transistor design, as well as Backside Power Distribution for better efficiency, Advanced Packaging solutions to overcome physical limitations and Dry Resist technology for reducing costs in lithography processes. If production chain partners want to improve yields and reduce costs, they are likely to invest in upgrading existing Lam's fabs instead of trying to build entirely new infrastructure.

Partially easing of China restrictions could be listed among factors to contribute to this kind of an optimistic view. The firm's solid financial metrics could be expected at the end of January when the time for nearest quarterly earnings will come, so that the stock has enough space and time for buying step-by-step on expectations. It could be mentioned here that Lam Research has a long history of beating consensus profit guidelines, averaging $0.63 per share above the midpoint over the last eight quarters. The appointment of Ernst & Young by Lam Research shareholders as the independent auditor may help to consolidate its corporate finances, even though its liquid assets are well exceeding short-term obligations and the company operates with a moderate level of debt. This sounds nice when combined with a $1 billion worth of shares in a quarterly buyback program. We feel that the AI agenda is going to continue driving the chip segment higher at least in the first half of 2025 before its attraction for Wall Street crowd may shift to some other side, but a broadening in the semiconductor rally could be expected later, based on still being in the shadow but slowly growing industrials. The same BofA sees global memory sales to jump by another 20% in 2025, after a nearly 80% rise this year, with core semiconductors (excluding memory) climbing by 13% on average and its whole industry sales target reaching $725 billion. Of course, China's market may potentially expose the whole segment to mid-term risks because of trade war threats and other geopolitical tensions, which may disrupt normal logistics and demand curve or create an overcapacity situation on Lam's Asian markets. Strengthening in the U.S. pressure may stimulate China for more attempts to develop its own alternatives to American-rooted manufacturing, which in turn may erode Lam's market share in the long term. So, this is a risk investors should closely watch.