Nomura Nearly Doubles Micron Price Target, Says Semiconductor Maker Has Further Upside Ahead

Micron Technology, Inc. MU investors seeking to take some profits off the table after the stock's 41-percent gain in 2018 may want to reconsider, as there is room for further upside ahead, according to Nomura Instinet.

The Analyst

Nomura Instinet's Romit Shah maintains a Buy rating on Micron Technology's stock with a price target lifted from $55 to $100.

The Thesis

Shah's bullish stance on Micron's stock dates to June 2016, and the stock has exceeded Nomura's price target nine times, the analyst said in a Monday note. Instead of a modest price target increase, a substantial move higher is justified for four reasons, Shah said: 

• DRAM spot prices are down a "modest" 3 percent in 2018, but a deep dive into supplier plans shows a desire to increase DRAM prices in the second and third quarter. For Micron, a 500-basis point change in DRAM pricing will impact its annual revenue by $1 billion and EPS by 70 cents.
• Micron likely held $8 billion in cash at the end of February and will generate $5 billion in cash flow over the next two periods, the analyst said. The company will be in a position to pay the entire convertible note balance it holds, which would prevent a dillutive effect of adding over 60 million shares to the float.
• Weaker NAND pricing will likely be offset by a stronger mix and lower cost per bit, which would result in ongoing margin expansion in both fiscal 2018 and 2019.
• Micron is among one of the few remaining chip companies with a growing scale, Shah said. This makes it a potential acquisition target, especially when considering the stock's "attractive" valuation at 5-6x free cash flow.

Price Action

Shares of Micron Technology hit a new all-time high of $58.45 on Monday and were higher by around 7 percent on the day.

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Photo courtesy of Micron Technology.