Micron Price Target Raised 125% At Nomura

Nomura’s Romit Shah believes that “semiconductor fundamentals are healthy or improving across several areas, including analog, SSDs, DRAM, and capital equipment.”

Shah upgraded the rating on Micron Technology, Inc. MU from Reduce to Buy, while raising the price target from $8 to $18.

Improving Trends

“While end demand remains a mixed bag, we believe this strength could persist through the back-to-school season in Sep/Oct,” the analyst mentioned.

Shah pointed out that Micron Technology has been among the worst performing stocks in the semiconductor space over the last 12 months, with the stock tracking DRAM spot price, which have declined about 50 percent since 3Q14.

However, DRAM ASP declined have moderated in recent times and memory suppliers appear to be witnessing shortages.

In addition, the analyst believes that the company has “executed in delivering much more 20nm volume in the marketplace, which should drive positive operating margins as costs decline 15-20 percent.”

Operating Margins

Shah estimates that operating margins would improve from -2 percent in the May quarter to +3 percent in the August quarter, 8 percent in the November quarter and 8 percent in CY17.

This would translate to EPS of %0.05 for the August quarter, ahead of the current consensus expectations, and $0.17 in CY16 and $0.83 in CY17.

“The improvement in profitability is important because Micron’s price-to-book multiple, which we estimate at around 1x, closely tracks operating margins,” Shah explained.