Analysts think Micron, with shares up more than 100% this year, can keep rallying
Publish Date: 2017-12-29


Micron Technology Inc. continues to benefit from favorable pricing for its DRAM chips, which has powered the company’s results all year long, and contributed to blow-out results in its latest quarter. Analysts say that dynamic could continue.


Shares of the chipmaker surged 4.9% in afternoon trading Wednesday, after the company reported better-than-expected fiscal first-quarter earnings and revenue numbers the prior evening and also raised its forecast for the current quarter far above expectations. Analysts cheered the news.


“The DRAM business continues to be highly profitable in current pricing environment,” wrote Instinet analyst Romit Shah, referring to dynamic random access memory chips. He believes that DRAM average selling prices rose 5% from the prior quarter and that the cost per bit declined 2%.


Shah added that the company’s earnings guidance for the current quarter suggests annualized earnings power of $10.32 a share. He has a buy rating on Micron MU, -1.58%  shares and raised his price target to $55, from $50.


Micron’s CEO told MarketWatch Tuesday that he thought demand for memory chips would remain strong, given opportunities in artificial intelligence and servers. Should the cycle turn, however, analysts think Micron could continue to thrive.


“Interesting to us is management’s strategy for moving what had been commodity memory and storage products into higher valued differentiated products,” wrote Stifel analyst Kevin Cassidy. “We see this effort as further dampening the notorious memory industry cycles.” He cited the company’s progress so far with its 3D XPoint technology.


“If successful with this transition, Micron’s valuation metrics should increase,” Cassidy added. He rates the shares at buy, with a new price target of $75.


Morgan Stanley’s Joseph Moore argued that DRAM supply may remain constrained given low capital spending, which supports favorable pricing for the chips. The company’s positioning in 3D NAND could also prove beneficial, in the form of a better mix shift.


“We think that Micron’s view on NAND is similar to ours -- the industry us entering a phase of higher supply growth, and there are likely to be price declines through 2018, which is different from 2017, but Micron has significant offsets,” wrote Moore, who rates the stock at overweight with a $55 price target. “Micron is moving from a difficult positing in planar NAND to a solid industry position in its first-generation 3D NAND,” which might take some time to show up in pricing.


Micron’s NAND business made up 27% of overall revenue for the latest quarter. and trade NAND revenue grew 47% from a year ago, the company said. Analysts flagged the 9 basis points of gross margin improvement for this segment.


“We continue to believe that improving execution and favorable business conditions should drive multiple expansion,” MKM Partners analyst Ruben Roy wrote.


 Micron shares have gained 110% so far in 2017, compared with a 42% rise for the Philadelphia Semiconductor Index SOX, +0.23%  and a 20% increase for the S&P 500 SPX, +0.18%

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