Morgan Stanley Raises Micron's Price Target To $20 On Manufacturing Transitions

Following the recent rally in Micron Technology, Inc. (NASDAQ: MU) shares, Morgan Stanley’s Joseph Moore believes the stock now meaningfully discounts commodity pricing improvements.

Moore maintains an Overweight rating on the company while raising the price target from $18 to $20.

“The key to Micron stock from here will be company-specific execution, where we look for 2 key transitions to gradually improve in costs, realized prices, & EPS,” the analyst mentioned.

DRAM And NAND

Moore also noted both NAND and DRAM have been marginally better than expected quarter-to-date and materially better than Micron Technology’s cautious guidance at the start of the quarter.

Going forward, the analyst expects the stock to outperform more gradually as the company reaps the benefits of DRAM and NAND cost reduction.

However, the analyst also stated, “DRAM supply remains tight, and with DRAM spending down sharply we'd expect continued tightness, albeit with a seasonal overlay, through 2017.”

NAND has also been very tight heading into seasonal strength, “but with potential step functions in supply as suppliers bring 3D online we'd expect more ups and downs through next year, but still with solid economics,” Moore said.

Profitability

Micron Technology has significantly underperformed peers in terms of profitability over the past 18 months, driven by persisting challenges to integrating manufacturing processes of the combined Elpida and Micron fabs, as well as limited costs benefits in the planar NAND business.

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