BMO Sees Nearly 50% Upside Potential In Micron, 'Attractive' Risk-Reward Picture

Although Micron Technology, Inc. MU's fundamentals are still fluid, the stock has an attractive valuation, according to BMO Capital Markets.

The Analyst

Analyst Ambrish Srivastava upgraded Micron from Market Perform to Outperform and hiked the price target from $32 to $50.

The Thesis

Micron's valuation and its more structurally profitable nature are the drivers behind BMO's improved outlook, Srivastava said in the Monday upgrade note. 

The semiconductor maker's shares have bottomed out or are close to book value in the last 10 years, the analyst said. The company is unlikely to report negative free cash flow even under "dire" pricing scenarios that BMO has taken into consideration, he said. 

Micron has managed to close its gap with larger rivals Samsung Electronics Co Ltd SSNLF and SK Hynix in DRAM, Srivastava said. At the same time, Micron's costs are about $2 billion lower than peers, he said.

If the DRAM ASP falls below $3.80/GB — which is necessary for Micron to break even on free cash flow, the analyst said — the company could lower capex further and manage operating expenditures to some extent. 

"We rate the shares Outperform, as we believe we are close to a cyclical trough on the stock and view an attractive risk-reward profile for the shares from current levels." 

Price Action

Micron shares were surging 4.79 percent to $34.26 at the time of publication Monday. 

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