Micron Upped to Strong Buy on Positive Estimate Revisions

Zacks Equity Research

On Aug 26, Zacks Investment Research upgraded Micron Technology (MU) to a Zacks Rank #1 (Strong Buy) on the back of positive estimate revisions and favorable memory market conditions.

Micron has witnessed 1 positive estimate revision out of 14 estimates for both the fourth quarter and fiscal 2014 over the last 60 days. While the fourth-quarter earnings estimate was pegged at 81 cents that for the fiscal was $3.21 per share.

We remain encouraged by the favorable conditions in the memory market due to fewer suppliers, limited new wafer capacity, differentiated products and diversified customer base which are expected to boost Micron’s prospects.

Recently, Micron entered into a licensing agreement with Tessera Technologies, Inc. (TSRA) to incorporate the Multi-Die Face-Down (xFD) technology that will help in manufacturing innovative storage products. Moreover, Micron’s new 8GB DDR3 SDRAM was selected by Inspur Group for its computing products.

Also, Micron expects industry NAND bit demand to grow at a CAGR of 38% over the 2014-2018 period, while supply is expected to grow at a CAGR of 31% over the same time frame.

We also remain positive on Micron’s expectation of 25% CAGR increase in DRAM demand over the 2014-2018 period, while supply is expected to grow at a CAGR of 21% during the same period, which will support prices and improve margins.

However, Micron faces competition from Samsung Electronics Co., Ltd., SanDisk Corporation (SNDK), SK Hynix Inc. and Toshiba Corporation in the semiconductor memory market. Notably, wafer capacity increases by its competitors could disrupt DRAM and NAND supply dynamics affecting prices and the company’s results.

Moreover, Micron reported strong third-quarter fiscal 2014 results. Both the top and bottom-line figures increased year over year and surpassed the Zacks Consensus Estimate. Results were primarily boosted by higher revenues and an improving PC DRAM pricing environment. Moreover, Micron provided modest guidance for the forthcoming quarter.

Nonetheless, we are encouraged by Micron’s strong third-quarter fiscal 2014 results. The results were primarily boosted by higher revenues and an improving PC DRAM pricing environment. Moreover, Micron provided modest guidance for the upcoming quarter.

Micron is also optimistic about supply/demand balance for DRAM and NAND memory chips in 2014, which should support prices. The company is also positive about its product launches and growing demand for its products, particularly SSD products.

Other than Micron, investors may also look at F5 Networks (FFIV), another Zacks Rank #1 stock in the technology sector.

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