Micron, Western Digital Analyst Upgrades Stocks, Sees 'Memory Rerating Potential'

Morgan Stanley, which thus far remained on the sidelines of memory and storage device manufacturers Micron Technology, Inc. MU and Western Digital Corp WDC, deemed it necessary to move to a bullish stance following the rapid bottoming of memory fundamentals.

The Analyst

Analyst Joseph Moore upgraded Micron from Equal-Weight to Overweight and increased the price target from $56 to $73.

The analyst also upgraded Western Digital from Equal-Weight to Overweight and lifted the price target from $64 to $88.

The Thesis

Customers are relaying conviction that memory will tighten over the course of 2020, forcing them to stock more inventories, Moore said, citing channel checks.

The analyst sees DRAM as a gradual bottoming process, yet thinks Micron will rerate. Although there is no shortage for DRAM, buyers anticipate shortages, which has led to gradual price improvement.

See Also: Micron, Western Digital Get Big Upgrades At Cowen, NAND Market In Focus

"But if DRAM margins bottom out now, even if the recovery is not V shaped, the shallowness of the downturn is unprecedented, following the unprecedented upside of the 2017-18 upturn," Moore wrote in the note.

NAND is likely to see a more of classic cycle bottom that appears to be more V shaped than thought a month ago, Moore said. He noted enterprise grade NAND is in outright shortage, while consumer NAND has become tight again in the last 12 weeks.

NAND prices, according to Moore, are likely to rise by as much as 10%, on average, in the first quarter, thanks to new demand from areas such as next-gen video game consoles.

A fairly typical NAND upturn should drive $8+ in non-GAAP earnings potential for Western Digital.

The Price Action

Micron shares were rising 0.7% to $59.57 and Western Digital was up 2.7% to $70.50.

Photo credit: Mike Deal, Flickr