Micron (MU): This Top Analyst Makes a Bullish Case to Buy on Yesterday’s Stock Weakness

Mizuho's Vijay Rakesh spotlights more upside ahead for Micron despite Morgan Stanley's downgrade, upbeat on Data Center, Server, and PC demand upside prospects.


Micron Technology (NASDAQ:MU) shares took an 8% beating in the market yesterday once the market caught word of Morgan Stanley analyst Joseph Moore running from the bulls and downgrading the chip giant to a neutral stance. Though Moore has been a memory sector bull for two years now, he opts to hedge his bets now on Micron amid valuation- even if DRAM roars with strength. Bigger picture, expectations for strength seem to be priced into MU shares, and a NAND recovery in the back half of the year looks less and less likely to the analyst.

Top analyst Vijay Rakesh at Mizuho is unfazed by share weakness, cheering, “we’re buyers on the pullback” as he looks for Data Center-fueled DRAM strength and an “inline” NAND performance.

As far as Rakesh is concerned, Micron’s “valuation remains low.” Therefore, the analyst reiterates a Buy rating on MU stock with a $70 price target, which implies a 19% upside from current levels.

“We continue to see upside in 2H18 driven by Data Center, Server and PC demand. While NAND should see mid-single digit ASP declines, it should also drive significant demand elasticity. We believe upcoming DRAMExchange pricing date will continue to show pricing strength (~70% of revenue) and inline softer NAND (~30%). Despite a softer 1H18 NAND, company-wide GM increased ~300bps+ in 1H18. We believe the 1xnm and 64L NAND transition and better NAND demand should continue to drive GM strength,” asserts Rakesh.

With “server DRAM growing” and “content growing faster,” the analyst notes Gartner spotlights DRAM content in servers roughly 60% more closing out 2019 compared to the first quarter of 2018, with the MU team looking for 366GB in average standard server content compared to the 145GB exhibited last year- a marked 2.5x boost. Rakesh anticipates the Intel Purley as well as the Nvidia DGX-2 boast 30% to as much as 2 times more DRAM content against past generations. When glancing at NAND, MU angles for standard server content circling 11TB by 2021, a 5 to 6 times jump from last year. Rakesh adds, “Server content of DRAM and NAND continues to grow; significantly outpacing the overall server unit market growing at a ~3% CAGR per Gartner.” Meanwhile, DRAM margins in the back half of the year have good odds to continue robust even facing certain dips in pricing.

Rakesh explains, “PC ODMs continue to see a DRAM shortage with expectations of flat to up 3Q DRAM pricing. A DRAM shortage has been noted by multiple OEMs […] and with Samsung potentially pulling back on 1y into 2H18, we could see tighter 2H18 DRAM.

For fiscal 2018, the analyst calls for $30.0 billion in revenue and $11.46 in EPS, looking for $32.6 billion and $10.61 by fiscal 2019. Even with a roughly 30% jump since analyst day, Micron’s valuation still looks “attractive” to Rakesh approaching “build season” between an approximately $10 billion buyback plan as well as a roughly $3 billion operational lift, marking an extra $3 to $3.50 in EPS power. Ultimately, considering the success of a 64L NAND crossover and a 1x nm crossover anticipated by the close of 2018, the analyst roots for MU’s standing for strength in the back half of the year.

Vijay Rakesh has a very good TipRanks score with a 73% success rate and a high ranking of #17 out of 4,814 analysts. Rakesh yields 30.6% in his annual returns. When recommending MU, Rakesh garners 62.0% in average profits on the stock.

TipRanks indicates a strong bullish campus betting on Micron stock. Out of 24 analysts polled in the last 3 months, 19 are bullish on MU stock, 4 remain sidelined, while 1 is bearish on the stock. With a return potential of 30%, the stock’s consensus target price stands at $76.65.

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