Morgan Stanley Calls The Bottom In Micron, Upgrades To Overweight

• Micron Technology, Inc. MU shares have been heading south through 2015, and are down 60 percent yeat-t-date.
• Morgan Stanley’s Joseph Moore upgraded the rating on the company from Equal-weight to Overweight, while raising the price target from $16 to $18.
• While expressing caution on near-term fundamentals, Moore said that sentiment and valuation are near the bottom.

Micron is scheduled to announce its February guidance on December 22. Expectations of a weak guidance have exerted pressure on the company’s shares, sending them to new lows and creating a “compelling entry point,” analyst Joseph Moore stated.

Moore does not foresee any “imminent improvement,” and the estimates for February and for FY16 are significantly below the Street expectations. He added, however, that there is limited downside for the stock in the near term.

The analyst commented, “We continue to be skeptical about the oligopoly effect in DRAM.” He noted, however, that there could be structural improvements from:

1. Higher capital intensity
2. Diversity of end demand
3. Micron’s DRAM assets having more than double the replacement value that they had in 2012 due to inexpensive acquisitions,
4. Higher strategic value of memory assets, driven by China’s interest in such assets

“We think these factors keep the stock above historic trough valuation metrics,” the Morgan Stanley report noted. While remaining cautious on near-term fundamentals, Moore mentioned that sentiment and valuation seemed to be near the bottom, and there could be 30 percent upside as the fundamentals stabilize by 2H16.