Micron Technology, Inc. (NASDAQ:MU) just won a new bullish vote from one of Wall Street’s best performing analysts, Amit Daryanani at RBC Capital. Daryanani sizes up a stellar investment opportunity for not one, but two markets: DRAM and NAND memory.
On back of compelling valuation, the analyst initiates coverage with an Outperform rating on MU stock with an $80 price target, which implies a 45% upside from current levels.
Even in less than ideal frameworks, the analyst wagers Micron stands to win on cash flow and EPS power: “While we don’t think cycles are done, we do think they are inherently more muted and MU is positioned to generate positive EPS and FCF under most down-cycle scenarios. We think the DRAM and perhaps even the NAND industries are structurally different going forward, driven by: a) enhanced capital intensity making bit capacity growth more modest and expensive; b) reduction in number of competitors (15 to 3 in last 20 years) making for sensible pricing environment; c) diversified DRAM user base (~42%/3% PC/Mobile in 2006 vs. ~13%/~31% today); and d) potential for capital allocation over time.”
With a mid-cycle EPS power Daryanani projects to be $8, the analyst notes, “Fundamentally, current MU stock price is implying downside EPS narrative that is closer to 2008–09 levels, a scenario that we think is unlikely to occur barring a material economic shock.”
Wall Street seems to be “missing” a few key factors, continues the analyst. First apprehensions about cycles to Daryanani are to put it bluntly “overblown.” After all, “unless this is comparable to the Great Recession (2006–09), there could be upside to MU stock,” the analyst asserts. Meanwhile, NAND demand has risen to be “much stronger” and DRAM growth seems to be getting increasingly “diversified.” Additionally, the analyst is angling for NAND to have “constrained” capacity in the back half of the year, with a “more challenging” 96L transition. For those fearing a massive boom and bust cycle history for DRAM, the analyst points out that when capital intensity grows, there tends to be a significant less of a risk of oversupply.
Bottom line, “MU offers a unique way for investors to gain exposure to DRAM and NAND markets at what we view as attractive valuations (~5x P/E),” Daryanani contends.
Amit Daryanani has a very good TipRanks score with an 84% success rate and a high ranking of #16 out of 4,801 analysts. Daryanani yields 27.4% in his annual returns. However, when recommending MU, Daryanani forfeits 5.5% in average profits on the stock.
TipRanks suggests a strong bullish consensus backing this chip giant’s market opportunity. Out of 23 analysts polled in the last 3 months, 19 are bullish on MU stock, 3 remain sidelined, while 1 is bearish on the stock. With a return potential of 39%, the stock’s consensus target price stands at $74.23.