Top analyst Rajvindra Gill at Needham is weighing in with a positive take and key highlights on Micron Technology, Inc. (NASDAQ:MU) following Winter Analyst Day. In reaction, the analyst reiterates a Buy rating on MU with a price target of $33, which represents a 33% increase from where the shares last closed.
“Net, we believe Micron is returning to 2014’s cycle with the positive caveat being that DRAM and NAND are increasingly sold into more diversified end markets (graphics, ADAS, networking, cloud) instead of just solely to PCs and smartphones. The net effect is demand outstripping supply in both NAND and DRAM end markets. With the transition to 3D NAND on track (margins should begin to improve), transition to 1xnm on DRAM, working capital management and no immediate changes to CAPEX (as of now), we expect Micron to generate $1.5BN of free cash flow in FY17 and gross margins could return to 36%. ”
In a day and age where “Memory is increasingly more important in the data economy,” the analyst sees these three driving trends for memory usage that will prove advantageous to the chip giant: First, the upping of data through the cloud and data center, where by 2020, it is anticipated each person will be generating 500k GB of data annually. Second, real-time analytics, the Internet of Things (IoT), and advanced driver assistance systems (ADAS) are set to generate a considerable volume of sensor data, impelling timely analysis and new structuring to be used promptly. Third, the analyst points to both cognitive as well as artificial intelligence as catalysts bringing forth a wave of intelligent computing capabilities.
Moreover, Gill asserts, “NAND demand and DRAM demand continues to outstrip supply; end markets are substantially more diversified than in the past.” From the analyst’s eyes, times are changing, and where DRAM once drove most of the volatility in the markets, end markets are changing coupled with a more integrated supply base.
Regarding the DRAM development model, “MU is making steady progress on 1xnm and yield execution is solid,” Gill concludes, anticipating surges in bit growth in both DRAM (30 to 40%) and NAND (45 to 55%) throughout the next two fiscal years as average costs are reduced. By the end of 2017, the analyst projects MU will have generated $1.5 billion in free cash flow, with the intent of using 50% to 75% of the funds toward paying off debts.
Rajvindra Gill has a very good TipRanks score with a 61% success rate and a high ranking of #60 out of 4,375 analysts. Gill garners 15.1% in his yearly returns. However, when recommending MU, Gill forfeits 31.8% in average profits on the stock.
TipRanks analytics indicate MU as a Strong Buy. Based on 20 analysts polled by TipRanks in the last 3 months, 18 rate a Buy on Micron stock while 2 maintain a Hold. The 12-month average price target stands at $27.13, marking a 9% upside from where the stock is currently trading.
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