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Micron Just Upgraded At Topeka Capital, But Why?


In a report published Friday, Topeka Capital analyst Suji Desilva upgraded the rating on Micron Technology, Inc. (NASDAQ: MU) from Hold to Buy, while raising the price target from $30 to $34. The company is expected to benefit from a PC upgrade cycle in C2H15, which should drive stability in DRAM pricing.

"Specific to the MU opportunity, we were encouraged by: 1) likely outsized DRAM cost per bit improvement relative to competitors, 2) steady TLC 3D NAND progress that can drive a demand inflection, and 3) continued commitment to capital returns while maintaining a competitive capex level," Desilva reported.

Meetings with the company's CEO and other executives revealed that Micron Technology was at or ahead of its 20nm DRAM ramp plan. The analyst expects the company to be able to achieve this important transition, while maintaining DRAM capex flat. The company is also expected to experience a margin tailwind in 2H15, which is likely to help narrow the gap with competitors.

"In the NAND market, MU is pushing for mid-2016 volume production of 16nm TLC in 2H15 and 16nm 3D TLC in mid-2016, to close the gap here as well. In doing so, we believe MU will deploy the capex needed to stay competitive. We believe any NAND business in the interim will be more challenging, but are confident that MU will drive NAND GM improvement over the next several quarters," the Topeka Capital report stated.

The analyst expects investors to look beyond the PC weakness in the recent past and the "supply-chain draw down" prior to the Windows 10 builds, and focus on the margin opportunity for Micron Technology due to cost improvements in manufacturing for both DRAM and NAND.

"Lastly, we believe investors are underestimating the mobile memory opportunity, given MU's strong position in flagship smartphone platforms. Most importantly, we believe MU's execution in the next couple of quarters will solidify investor confidence in the relative sustainability of MU margins through cycles, thereby increasing investor confidence in the defensibility of MU's cash flow opportunity," Desilva added.

Latest Ratings for MU

Feb 2021MizuhoMaintainsBuy
Feb 2021CascendMaintainsBuy
Jan 2021Raymond JamesMaintainsStrong Buy

View More Analyst Ratings for MU
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Posted-In: Suji Desilva Topeka Capital MarketsAnalyst Color Upgrades Price Target Analyst Ratings

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