Micron, Western Digital Get Big Upgrades At Cowen, NAND Market In Focus

An earlier-than-expected improvement in NAND market fundamentals will likely benefit memory and storage technology companies Western Digital Corp WDC and Micron Technology, Inc. MU, according to Cowen.

The Analyst

Karl Ackerman upgraded Micron from Market Perform to Outperform and increased the price target from $50 to $70.

The analyst upgraded Western Digital from Market Perform to Outperform and hiked the price target from $45 to $88.

The Thesis

DRAM market fundamentals are expected to take a turn for the better in the second half of 2020, aided by a modest server upgrade cycle and 5G smartphone adoption that is driving over 50% content increases in premium-tier handsets, Ackerman said in a note.

Both DRAM demand and ASPs are likely to improve on these dynamics, the analyst added.

"This is most bullish for MU given our view DRAM represents over 100% of total operating profit," Ackerman wrote in the note.

Additionally, Micron has mostly closed the valuation gap with peers this cycle, given its leadership on 1z DRAM.

The analyst expects the company to increase its overall gross margins from 27% in the first quarter of fiscal 2020 to 43% in the next seven quarters, thanks to the DRAM market fundamentals and the company's ability to reach bit crossover of 1y and 1z in the middle of calendar year 2020.

"MU's stock is highly correlated to directional changes in DRAM ASPs and overall GMs, suggesting the stock should accelerate from here," Ackerman said.