In some regards there’s almost too much of a bullish consensus on Micron Technology, Inc. (NASDAQ:MU), leaving one to wonder if an expect-when-you-least-expect-it pullback for MU stock is being set up. Irrational and hype-based trading is the new norm now, though, so much like the uncanny marketwide rally since November won’t die, the bullishness relating to Micron may well carry on for the indefinite future.
In fact, a handful of analysts all but made sure of this, recently, speaking fondly of MU and, in some cases, upgrading Micron Technology shares. Here’s a closer look at the most recent wave of over-the-top optimism.
To be fair, much of the recent praise for Micron is well deserved. The company just logged four straight quarters of revenue growth, as well as four straight quarters of sales growth. Some of that progress has to be attributed to rising DRAM (memory chip) prices, though a big chunk of it has to be chalked up to the fact that Micron just knows how to make and market a great product at the right time.
That’s the way Susquehanna analyst Mehdi Hosseini sees it anyway, as he recently upped his price target on MU stock from $40 per share to $50 (it’s currently trading around $36, for perspective).
“All in all, we expect [the] stock to move towards our updated PT of $50, driven by prospects of higher normalized earnings, and continued re-rating,” he wrote.
If this was just Susquehanna’s take, it might not even be worth mentioning; it’s not just Susquehanna, though.
Evercore ISI recently mirrored Susquehanna by upping its target price on MU stock from $40 to $50 as well, noting, “Yes, this time is different” (in reference to previous memory pricing booms that have gone bust all too quickly).
The last mass exodus from the memory-making market, prompted by the then-glut, has left only three major DRAM players supplying the entire market; SK Hynix (OTCMKTS:HXSCL) and Samsung Electronics (OTCMKTS:SSNLF) are the other two.
There’s still more than enough business for each company, though, as the barriers to entry for the DRAM memory business are relatively high — high enough for Evercore ISI analyst C.J. Muse to suggest DRAM supplies will remain tight even though companies have already planned between 15% and 20% more capital expenditures on DRAM for next year.
It’s Goldman Sachs’ new-found love of Micron Technology, however, that puts the exclamation point on this spat of optimism. Goldman analyst Mark Delaney recently reversed his May downgrade of MU stock, calling it a “Buy” again earlier this month.
“While we believe it could be the mid- to later stages of the memory upturn and note memory fundamentals can change quickly, our industry discussions suggest 4QCY17 DRAM [dynamic random-access memory] pricing could rise (with NAND [flash memory] flat to up) and the DRAM cycle could remain tight in 2018.”
Delaney added he thinks DRAM prices could rise another 10% in the second half of this year as memory chip companies further penetrate the server market. This year’s total capital expenditures on DRAM should be up 24%, according to the Goldman analyst.
And here’s the interesting part about the recent comments and upgrades from analysts: The three upgrades and upped price targets discussed above still don’t reflect the majority opinion, leaving the door open to even more price-lifting upgrades in the near future.
The historical chart of analyst opinions and target prices below tells the tale.
While MU went through a wave of upgrades early this year, the analyst community has been relatively quiet since then. Goldman, Evercore and Susquehanna may have gotten that ball rolling again.
Bottom Line for MU Stock
As of the most recent look, the analyst community feels MU shares are worth $44.28 per share; Evercore and Susquehanna are both saying $50. That average target is apt to rise once more analysts follow the lead of those firms, as well as Goldman.
It’s unlikely MU stock will get there in a straight line, mind you. Indeed, after the stock’s 30% run-up since early August, you can pretty much count on at least a small wave of profit-taking between here and there. That dip may be a buying opportunity, though. Even at the upper-end target price of $50, MU’s 2017 P/E ratio is still a dirt-cheap 10.6.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.