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Why Micron Technology, Inc. (MU) Stock Popped 4% Today

Goldman Sachs' Mark Delaney now angles for 8% upside potential for MU shares.


As Micron Technology, Inc. (NASDAQ:MU) gears up to deliver its second fiscal quarter results come March 22nd, investors are content to see a bullish vote backing the chip giant in anticipation from Goldman Sachs.

Shares are surging almost 4% on the heels of Goldman Sachs analyst Mark Delaney‘s enthusiastic take on “positive DRAM trends.”

In other words, the analyst is calling for a beat on Micron’s second fiscal quarter performance for 2018 as well as for the third fiscal quarter guide to outclass FactSet Street-wide expectations.

After industry discussions with memory suppliers as well as channel re-sellers, Delaney spotlights a rise in DRAM average selling prices. Delaney’s bet: “pricing is tracking up low single digits qoq for 2Q18.”

In a confident earnings preview, the analyst reiterates a Buy rating on MU stock while boosting the price target from $55 to $58, which implies a 8% upside from current levels. (To watch Delaney’s track record, click here)

The analyst wagers 32 GB server modules now sell for around $310 to $315, a jump from the $300 Delaney spotlighted from his last checks in January; and a definite climb from the roughly $290 seen in the fourth quarter of 2017. Notably, the analyst calls attention to the server DRAM that takes an around 15% to 20% slice of total industry bits.

“While we had been concerned that softer smartphone unit trends could weigh on DRAM pricing in 2Q18, we believe that a couple of factors are offsetting this dynamic: 1) DRAM suppliers shifted mobile and PC DRAM allocation toward server bits in 2H17 which has helped maintain healthy supply/demand dynamics in the mobile and PC markets, and overall DRAM supply growth remains limited; 2) Content per box continues to increase,” writes Delaney.

Though the analyst believes the power of an earnings beat may not be quite as strong this quarter (considering the company has tweaked its second fiscal quarter guide upwards already for 2018), he still calls for another beat and raise from Micron. The company has a solid track record of beating the tail-end of its own guide for the last five quarters in a row. Moreover, the analyst particularly anticipates a beat and raise as the Street probably calculates DRAM ASPs to be flat or even lower quarter-over-quarter in the “out” quarter.

“We continue to believe the memory upturn is in the middle to later innings, with DRAM tight in 2018 but NAND mildly oversupplied,” Delaney contends, asserting:  “We believe this could be one of the longer memory cycles in recent history given a strong demand backdrop, limited DRAM capex to date, and given that yield challenges on 1Y DRAM and 9XL NAND could mitigate potential supply additions in 2HCY18/1HCY19. We continue to hear about yield/ramp difficulties from the supply chain for advanced nodes in DRAM and in NAND.”

TipRanks underscores Micron has garnered one of the best analyst consensus rating on the Street. Out of 17 analysts polled in the last 3 months, 16 are bullish on Micron stock while only 1 hedges his bets on the sidelines. With a healthy return potential of nearly 10%, the stock’s consensus target price stands at $59.56.