Micron Technology, Inc. (MU) Gets Defended by a Bull After NAND Concerns Weigh on Shares

Stifel's Kevin Cassidy says prices and expenses are poised to decline, but the analyst points to a transition to 3-D NAND parts as the reason, calling demand "price elastic."


Micron Technology, Inc. (NASDAQ:MU) got hit in the fray yesterday after Morgan Stanley took a cautious step to the sidelines on rival chip maker Western Digital amid apprehension that NAND flash chip prices are on the brink of falling from their latest heights.

Should shareholders be worried? Stifel analyst Kevin Cassidy says absolutely not, fending off NAND insecurity and staunchly backing the bullish camp.

The analyst rates a Buy rating on MU stock with a price target of $65, which implies a close to 35% upside from where the stock is currently trading. (To watch Cassidy’s track record, click here)

Ultimately, “We are defending the MU shares today by pointing out that November quarter NAND flash market pricing trends are in line to better than we have been modeling. Micron’s planar NAND Flash gross margin were in the 20% range due to the product being designed as quality 2-bit/cell storage, while competitors shifted to lower cost/bit 3-bit/cell. In transitioning to 3D NAND Flash, Micron designed for smaller die size and 3-bit/cell. As Micron’s NAND Flash output transitions to 3D from planar, costs should decline ahead of competitors’ cost declines, and we expect ASP per bit will also decline. We have been modeling Micron’s November NAND Flash ASP to decline 12% q/q, 10% y/y and for the February ending quarter to decline 8% q/q and 12% y/y,” writes Cassidy.

For fiscal 2018, the analyst anticipates a 16% year-over-year dip in average selling prices, noting that the demand for NAND Flash is “price elastic,” predicting demand will experience a lift while average selling prices wane.

Unfazed that MU rival Samsung could in turn lean into spending, Cassidy underscores that the rival “emphasized that its investment were not for near-term bit growth, but the company is investing for business capabilities for the next three years.”

Voices in the financial universe tend to side more on Cassidy’s bullish side than with Morgan Stanley’s Kathryn Huberty’s recent vote of cautious, with TipRanks analytics demonstrating MU as a Strong Buy. Out of 24 analysts polled by TipRanks in the last 3 months, 22 are bullish on Micron stock while 2 remain sidelined. With a return potential of nearly 8%, the stock’s consensus target price stands at $52.55.

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