Shares of Micron Technology, Inc. (NASDAQ:MU) rose nearly 9% this week, after top analyst Romit Shah at Nomura Instinet nearly doubled his price target on the stock due to his belief that DRAM pricing continues to rise. Shah also sees the memory chip giant as a potential M&A candidate amid ongoing reports of large-scale M&A
The analyst reiterated a Buy rating on MU, while boosting his price target to $100 (from $55), which implies an upside of 70% from current levels. Investors who listened to Shah over the past year have made 18.9% on their Shah bets, according to TipRanks. The 5-star analyst has a 67.6% average return when recommending MU, and is ranked #166 out of 4787 analysts.
Shah is setting a high bar for Micron to put ace fiscal second-quarter earnings on the table come March 22.
Shah wrote, “We are encouraged by the stability in DRAM spot pricing during the seasonally weaker calendar first quarter and anticipate another 10% increase in pricing over the next six months. Year to date, DRAM spot pricing is down a modest 3%, which is much better than normal. In 2014-2016, DRAM spot declined between 10-20% in Q1. Current pricing trends reflect the fact that shortages still exist in the marketplace. Our research indicates that suppliers will begin raising prices in Q2 and Q3.”
The analyst continued, “We believe Micron stands out as a potential acquisition target for several reasons. Micron is one of only a few remaining U.S. chip companies that has scale (revenues approaching $20 billion). In addition, the company is growing its presence in NAND, which has become a strategic asset for large chip companies serving the smartphone and datacenter markets. Over the last year, we’ve seen Broadcom bid for Toshiba’s NAND business and Intel invest several billion dollars into 3D NAND and its proprietary 3D XPoint architecture. We also believe that Micron’s valuation looks attractive at 5-6x free cash flow. Overall, we see these attributes garnering increased M&A discussion as the semiconductor industry consolidates.”
Overall, out of 17 analysts polled in the past 3 months, 16 rate Micron stock a Buy, while only one rates the stock a Hold. With a return potential of 12.51%, the stock’s consensus target price stands at $66.53.