'Now Is the Time to Buy Micron (MU)', Morgan Stanley Proclaims

Shares of beaten down memory stock Micron Technology (NASDAQ: MU) is up sharply Thursday following a bullish note from Morgan Stanley analyst Joseph Moore, highlighting the valuation is now at historical lows.

"Now is the time for cyclical investors to buy Micron, in our view," the analyst proclaimed.

At $10 per share the firm sees limited downside based on a classic cyclical rebound driven by elasticity and an end to inventory depletion.

While some investors fear the stock can go back down to $6, the level where the stock bottomed in 2012, the analyst highlights the stock is currently approaching the same valuation on P/B (adjusting for the Elpida capacity impact to book value), EV/S, trailing P/E, and replacement value, given Micron's substantial acquisitions of incremental capacity.

Moore continues to view that the fundamentals will be difficult in the first half, with recovery thereafter.

The analyst highlighted three various valuation methods:

Method #1: Traditional metrics. Book value $13.32 per share after making some (arguable) adjustments.

Method #2: Trailing earnings power of $0.94 likely supports the stock even as near term earnings power erodes.

Method #3: Valuing manufacturing assets at replacement cost values Micron at $28.80.

The analyst said Method 3 is most relevant in a strategic context , which leads to their conclusion that Micron is likely to be a beneficiary of China interest in semiconductors. He explains: "Last year, WSJ commentary indicated that Chinese investor Tsinghua Unigroup was attempting to buy Micron for $21 per share; Tsinghua has not publicly commented, and Micron has commented only that they did not receive a bid (but did not comment on whether there were talks). While we don't know if there are any talks, our review of a potential deal highlights an outcome that is highly uncertain. If such a bid were to take place, it would be very difficult to know for certain that it would survive regulatory scrutiny. Having said that, the value of Micron as a strategic asset to a sovereign attempt to build a DRAM industry might be worth the attempt. We have no knowledge of any pending transaction."

The firm maintained an Overweight and price target of $18, suggesting nearly 80% upside to Wednesday's close.

For an analyst ratings summary and ratings history on Micron Technology click here. For more ratings news on Micron Technology click here.

Shares of Micron Technology last traded up 6.7% to $10.72.

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