Micron Bull Makes the Case for a $50 Target

Micron will host its Winter Analyst Day in Scottsdale on February 13 during market hours. Prior to this, Inotera will host a conference call to outline its new long-term agreement with Micron before the markets open on February 11. Both of these events are expected to be positive catalysts.

The analyst day is expected to focus on DRAM’s 20 nm transition, which should provide over 20% year-over-year bit growth for the second half of the 2015 calendar year. In the near term, NAND’s focus is expected to be on growth in Enterprise SSD/16nm TLC and long-term focus on 3D NAND. Also there is expected to be a new capital allocation program that is consistent with the current policy of using ongoing free cash flows for convert reduction and buybacks.

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Pitzer detailed in the report:

While it is difficult to forget the hyper-cyclical nature of memory, decelerating bit/wafer growth, and new demand drivers especially for enterprise DRAM as it relates to data analytics, [these] set the foundation for sustainable growth and earnings — which we believe will drive multiple expansion for Micron — the stock is currently trading at 7.6 times our [2015] calendar year earnings per share (EPS) of $3.69, an implied free cash flow yield of 9%, and 2.8x times BVPS [book value per share]. Our $50 price target is based upon 10x of sustainable EPS of $5.

Credit Suisse also commented on a longer-term outlook:

We expect no meaningful change in calendar year 2015 but expect Micron’s EPS to benefit in calendar year 2016 (up to $0.30 benefit to Micron calendar year 2016 EPS). In addition for DRAM (70%/95% Micron Revenue/EPS), quarter-to-date metrics are supportive of a positive view thru AT LEAST the first half of 2016 specifically: (1) Samsung indicated calendar fourth quarter/calendar first quarter bit growth of flat quarter over quarter (2) ASML memory orders declined 65% quarter over quarter, despite DRAM Operating Margin that are highest in last 14 years (3) L17 Ph2 was committed to logic.

The stock has a consensus analyst price target of $42.34, which indicates upside of 46.5% from Friday’s close of $28.91. Credit Suisse’s $50 price target implies an upside of 73%, compared to the highest listed analyst price target of $60, which signals upside of 108%.

Following the opening bell Monday, Micron Shares were down 1.4% to $28.51, in a 52-week trading range of $21.02 to $36.59.

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