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Micron: Growing DRAM Demand Merits a Price Target Boost

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·3 min read
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Micron’s (MU) upward momentum is showing no signs of fatigue. After struggling through 2020’s first three quarters, affected by an adverse microenvironment and a lack of demand for its memory products, the chip giant is firing on all cylinders.

The semiconductor industry is known to be cyclical in nature, and the pendulum has now swung sharply in Micron’s favor. As customers’ demand for DRAM has increased, so have Investors’ appetite to own Micron shares. While shares have pulled back some along with most of the market recently, since 4Q20, the stock is up by 89%.

The noises coming from the semiconductor industry, suggest to Deutsche Bank analyst Sidney Ho, that the need for DRAM is set to further accelerate.

“With demand across applications appearing more robust that we previously expected, we believe DRAM will remain undersupplied for the next few quarters even with the strong DRAM capex increase expected this year,” said the 5-star analyst.

Ho’s thesis was validated when Micron recently raised its FQ2 guidance, with Ho noting, “the strength appears to be broad based across end markets, with even enterprise demand improving.”

Micron now expects F2Q revenue between $6.20 and 6.25 billion, while EPS is expected in the $0.93-0.98 range, up from the prior $5.6-6.0 billion and $0.68-0.82 forecast, respectively.

Accordingly, the revised figures have merited an adjustment to Ho’s expectations. The analyst now expects FQ2 revenue and EPS of $6.24 billion and $0.96, up from $5.92 billion and $0.85. Both figures are at the high end of Micron’s guidance.

Industry checks at PC/server/storage OEMs also suggest DRAM pricing will continue to increase until C3Q21 at the earliest. This merits a raise to the 12 month estimates; Ho now expects EPS for FY21 to hit $4.70, up from the prior $4.44.

Although Ho warns that the industry’s cyclical nature will at some point inevitably mean the demand/supply paradigm will shift again, Ho expects Micron’s valuation to continue its upward trajectory “until there are signs that the upcycle is coming to an end.”

Accordingly, Ho’s rating stays a Buy, while the $110 price target indicating additional upside of 24%. (To watch Ho’s track record, click here)

As the ratings from Ho’s colleagues indicate, Micron has plenty of other supporters on the Street. The analyst consensus rates the stock a Strong Buy, based on 23 Buys vs. 2 Holds. At $112.92, the average price target suggests gains of 27% in the year ahead. (See Micron stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.