UPDATE: MKM Partners Upgrades Micron Technology (MU) to Buy on Positive Risk-Reward, Valuation
MKM Partners upgraded Micron Technology (NASDAQ: MU) from Neutral to Buy with a price target of $23. Analyst Ian Ing thinks risk-reward has turned positive and pointed out attractive valuation.
Ing explained, "Our thesis is based on three factors. First, MU should close the gap with the current industry cost structure as we progress through 2016. Second, we believe MU is undervalued, trading below 1x a “true” book value of $17/sh (adding $5B of Elpida write down and $2B of understated Inotera stake to the present $11/sh). Third, a potential $5B opportunity in two years via the 3D Crosspoint memory breakthrough is a call option we believe not yet fully appreciated nor in analyst’s models."
"In our non-deal roadshow with Kipp Bedard, the tone on DRAM and PCs turned cautiously optimistic. Samsung appears to have held DRAM pricing flat in the last month, Tier 2 and Tier 3 DRAM module makers have raised pricing (last seen in July 2014), and long-dormant PC sales are seeing upside to orders from inventory replenishment and modest refresh cycles. Yet, this could potentially still be a head fake as directionality of contract pricing to Tier 1 module makers remains uncertain (but should become more apparent in the next two weeks)," added the analyst.
Ing added, "We think the shares are attractive here to long-term value investors that look for industry consolidation to mitigate, not prevent, industry cyclicality (seen in airlines, car rentals, and hard drives). We would not be surprised by further Street estimate cuts (our August and November estimates remain below consensus), but see revenue and gross margin tailwinds stabilizing the model entering CY16. We expect sector specialists and shorter-term investors to be more “gun shy” given the history of disappointment and gross margin volatility in memory."
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 closed at $16.82 yesterday.