We Continue to See Value in Micron (MU) Shares, Says MKM

MKM's Ruben Roy notes that even with Micron's 47% year-to-date surge, this chip giant continues to glint with value potential.

The memory backdrop is looking good to MKM analyst Ruben Roy, who keeps his bullish bet behind Micron Technology, Inc. (NASDAQ:MU) stock- even amid whispers of a memory cycle reaching its peak. Specifically, Roy draws confident attention to secular shifts in the memory sector along with particular drivers for the chip giant. Confident on the industry and Micron’s prospects to succeed in the market, Roy highlights an upturn in stronger DRAM average selling price expectations, leading him to boost 2018 and 2019 forecasts.

As such, continuing to spotlight “value” in the stock, the analyst reiterates a Buy rating on MU with a $72 price target, which implies a 19% upside from current levels. (To watch Roy’s track record, click here)

Just over three weeks ago, the MU team boosted its third fiscal quarter outlook, lending for a stellar Analyst Meeting. Roy believes, “Consequently, investor focus will remain on longer-term supply/demand commentary. To that end, we believe that expectations for both DRAM and NAND supply bit growth and demand/ASP trends are reasonable. This dynamic, in our view, sets up positive bias to MU estimates as we look ahead to the back half of the year.”

Meanwhile, the “DRAM pricing environment appears to be holding up,” adds the analyst, who notes that his recent supply chain checks point to positive DRAM average selling price trends- positive indication anticipated to keep soaring in the short-term. The best feedback circled sustained server demand as well as hints of encouragement around a rise in mobile demand to hit in the back half of the year. With regard to the chip giant, Roy estimates average selling prices for DRAM are +2% from +2% exhibited in the first fiscal quarter of 2018 and flat from the -2% seen in the second fiscal quarter. Accordingly, Roy has become more upbeat on his expectations for fiscal 2018 and fiscal 2019.

With regard to sell-side average selling price expectations for NAND in the medium-term, the analyst finds these pricing dynamics seem “well understood” and expectations continue to be “reasonable.” The Street’s expectations for Micron seem to suggest an 11% dip in average selling prices this fiscal year and a 13% plunge in average selling prices by next fiscal year. Roy’s research offers more color into the picture of bit supply growth having the potential to trend close to the bottom-end of industry expectations, or roughly 35%; especially considering obstacles stemming from a shift in the manufacturing process.

Ultimately, “Despite the 47% YTD increase, MU shares continue to trade at a valuation that suggests skepticism relative to the longer-term sustainability of the current memory cycle (5.8x our C2019 EPS estimate). We believe that the continued favorable DRAM supply/demand environment will extend into the back half of this year and this, coupled with continued cost reduction catalysts specific to MU, as outlined at the company‚Äôs recent analyst meeting, should ultimately yield multiple expansion,” Roy contends.

TipRanks reveals optimism circling the Micron narrative when sizing up sell-side analysts’ perspectives. Out of 24 analysts polled in the last 3 months, 18 are bullish on MU stock, 5 remain sidelined, while 1 is bearish on the stock. With a return potential of nearly 28%, the stock’s consensus target price stands at $77.50.

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