Longbow Upgrades Micron As Memory Market Fundamentals Improve

Memory product fundamentals are on the mend, according to Longbow Research, which turned bullish Wednesday on Micron Technology, Inc. MU.

The Analyst

Analyst Nikolay Todorov upgraded Micron from Neutral to Buy with a $66 price target.

The Thesis

Memory shipments are increasing, and DRAM and NAND pricing fundamentals are improving, reflecting upside at select hyperscales and the risk of tightening supply, Todorov said in a Wednesday note, citing channel checks. (See his track record here.) 

The upside in calendar year third-quarter shipments came due to select U.S. hyperscalers, content growth with Chinese mobile and supply risks stemming from the Japan-Korea dispute, the analyst said. 

Upstream inventory is shrinking faster than previous forecast, he said. 

This is likely to lead to the bottoming of DRAM fundamentals by the year's end, to add to the in-process recovery in NAND fundamentals, Todorov said. 

Longbow expects DRAM contract prices to decelerate substantially in the second half of 2019 and to normalize by the first quarter of calendar year 2020, the analyst said. 

The muted year-over-year supply growth exiting 2019 will likely allay concerns of a potentially soft first half of 2020, keeping pricing reaction muted, he said. 

"We are turning more positive on memory fundamentals as we now believe excess inventory will be depleted faster than expected, triggering an improvement in pricing and margin ahead of current expectations." 

Micron has not received due credit for its improvement in operating margin relative to peers, in Longbow's view. 

The Price Action

Micron shares were up 2.75% at $50.75 at the time of publication Wednesday. 

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Photo courtesy of Micron.