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Micron Impresses, But Shares Rich

Abhinav Davuluri

Micron (MU) reported stellar fiscal second-quarter results, driven by a strong pricing environment that is expected to persist over the next quarter. While the recent uptick in DRAM average sales prices has provided a nice boost to Micron’s results, we reiterate our positive thesis on the firm’s efforts in 3D NAND. As it shifts capacity from planar to more advanced 3D NAND, Micron can take part in more favorable markets such as higher-density solid-state drives and enjoy better cost metrics. In fact, the firm has already recorded a 22% decline in cost per bit output in NAND during the first half of fiscal 2017. Shares rose roughly 9% during after-hours as guidance implies another double-digit increase in quarterly revenue. We are modestly raising our fair value estimate to $26 from $24 per share as we incorporate superior near-term expectations, but we caution prospective investors to seek a wider margin of safety, as the no-moat stock has already run up over 130% during the past 12 months.

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