Why Micron Technology, Inc. (MU) Stock Has at Least Another 35% to Go

Susquehanna's Mehdi Hosseini is out lifting his 12-month target expectations on MU ahead of its FQ2 earnings show

Micron Technology, Inc. (NASDAQ:MU) has earned quite a big vote of confidence from an analyst who was already bullish on this semiconductor player.

Ahead of the chip giant’s second quarter print due this Thursday, with a stock that has experienced a roughly 50% skyrocket in value from early February, Susquehanna analyst Mehdi Hosseini is out with an upbeat earnings preview.

In fact, “perhaps setting aside the fear of a NAND ASP collapse,” this stock is sitting in a good position in the market, gaining rapid-fire momentum; a position Hosseini calls the ultimate “sweet spot” for Micron.

Anticipating a one-two punch of “cost leadership” and “product diversification” to take center stage in the company’s  quarterly performance, the analyst reiterates a Positive rating on MU stock while hiking the price target from $60 to $80. These new, raised expectations notably imply a nearly 35% upside from current levels. (To watch Hosseini’s track record, click here)

“With increased focus on normalized earnings, estimated ~$8, expect the focus to change to the L-T strategy (i.e. specifics behind moving up the stack),” Hosseini writes.

Though consumer demand has not been as strong, Cloud cap-ex “has more than offset” this weakness, notes the analyst. One meaningful “milestone” awaiting the giant in the wings is cost leadership in NAND, bets Hosseini, especially on back of the new SATA QLC 64L 3D NAND SSD: “the first product to establish MU as the (NAND) cost leader.”

Under CEO Sanjay Mehrotra’s command, the company has thrown its priorities behind “[moving] up the stack” in strengthening the company’s system-level solutions and firmware. Though this may mean MU could have to battle against its present customers, as Cloud is taking up a more important slice of collective memory demand. As such, MU aims to grab a larger “mix of economics,” the analyst wagers, arguing it is “inevitable” that the goal to “move up the stack” comes to fruition.

In Hosseini’s eyes, Memory could become the quickest growth segment of next-gen Data Center spending and an M&A play will be essential for the company to elevate its IP/System savvy. Moreover, for a stock that has seen a 50% jump in value in just 6 weeks, equity could prove important here.

With regards to the DRAM cost curve, the analyst believes the company “needs to pick up the pace of R&D as Samsung starts to insert EUV for DRAM by YE18.”

“All in all, expectations are raised for MU into the Mar-22 report, and we encourage investors to focus on L-T trends: next-gen Data Centers will drive higher growth for storage/memory, while bits of data cannot be virtualized. The likes of MU are in the sweet spot, though execution is necessary to inspire confidence in L-T earnings power,” Hosseini surmises with enthusiasm approaching Thursday’s big earnings show.

MU stock has landed among one of the best-ranked Wall Street players on TipRanks. Out of 17 analysts polled in the last 3 months, 16 are bullish on MU stock while just 1 surveys from the sidelines. With a return potential of 16%, the stock’s consensus target price stands at $68.25.  

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