Micron May Be Facing Its Biggest Opportunity For Fundamental Improvement

Analysts at Baird undertook a field trip to Asia to gain a better understanding of Micron Technology, Inc. MU's outlook.

Baird's Tristan Gerra maintained an Outperform rating on Micron's stock with an unchanged $40 price target as his first-hand checks confirmed ongoing strength in both DRAM (dynamic random-access memory) and NAND memory trends. NAND memory is a type of non-volatile storage technology that doesn't require power to retain data.

DRAM supply and demand dynamics appear to be tightening, Gerra stated in a report. As such, DRAM pricing is expected to increase sequentially in both the second and third quarter. Meanwhile, the demand outlook is favorable as PC units are tracking ahead of expectations in the second quarter, highlighted by continued DRAM inventory replenishments, and content increases.

The analyst is also lowering his NAND bit supply assumption for 2017 as the ramp of 64-layer 3D NAND appears to be slower than expected. This should contribute to a continued tightening in the second half of the year.

Micron's Valuation

Micron's stock continues to trade below the trough multiple on peak earnings of the prior cycle, Gerra added. Yet there may be a disconnect as Micron's own fundamentals along with the industry as a whole have improved since then.

Looking forward, Micron faces an opportunity for mix improvement in NAND with the ramp of TLC and 3D architectures. Meanwhile, the company is building longer-term relationships with key enterprise customers while the newly appointed CEO Sanjay Mehrotra brings "heavy" NAND expertise to the table which should be viewed as "very beneficiary" for Micron over the medium term.

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