Micron Analyst Drops Bearish Stance, Remains Cautious On Calling Memory Market Bottom

Memory stocks have had a rough year, but one analyst said Tuesday that the near-term is starting to look brighter for Micron Technology, Inc. MU.

The Analyst

Morgan Stanley analyst Joseph Moore upgraded Micron from Underweight to Equal-weight and raised his price target from $31 to $48.

The Thesis

While the DRAM market remains oversupplied, Moore said in a Tuesday note that trade tensions and supply risks are now creating near-term demand as companies build inventory levels to hedge against risk. (See his track record here.)

In the longer-term, Moore said he remains negative. 

"Our sense is that concerns about the supply chain (specifically Japanese chemicals) have caused legitimate concern from buyers, leading them to put inventory into place." 

Large memory buyers still see a major supply disruption as unlikely at this point, but they are cautious enough to build inventory higher than usual, the analyst said. 

Morgan Stanley anticipates the same phenomenon will help support the NAND market in the near-term as well.

For Micron, Moore said the potential bounce in prices could trigger a “head fake” in EPS.

Investors may conclude that Micron’s annual EPS run rate has bottomed out at more than $2, he said. 

If global geopolitical risks fall, Moore said DRAM and NAND pricing will likely begin to fall once again.

Coupled with high inventory levels among buyers, this dynamic could put Micron’s cash flow into negative territory and its share price at around book value, the analyst said. 

On the flip side, Moore said if cloud and smartphone inventory builds reaccelerate, Micron could be in for a strong 2020 and the stock could continue upward to new highs.

Price Action

Micron shares were trading higher by 1.32% at $47.44 at the time of publication Tuesday. 

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Photo courtesy of Micron Technology.