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Why Micron Popped This Week

Why Micron Popped This Week

Shares rallied 12% on news of one prominent analyst nearly doubling his price target for the chip maker.

Micron (NASDAQ: MU) has had a great year, rocketing 56% since March 2017. And now there’s a new Micron bull on Wall Street.

Nomura Instinet raised its 12-month price target for the chipmaker from $55 to $100, representing just over 68% upside to Tuesday’s close. It’s now the highest price forecast for Micron out of the analysts that cover the company, according to FactSet.

Nomura analyst Romit Shah believes Micron is in the midst of a major breakout and, not surprisingly, he maintained his buy rating for the stock.

“We see DRAM [memory] pricing resuming an upward trend in Q2, a first-time dividend and share buyback announcement in May, continued margin expansion in NAND [flash memory] and increased M&A discussion as important catalysts,” wrote Shah in a note to clients Monday. “We believe Micron shares are in the early stages of another major breakout. … We are raising our target substantially.”

Micron shares have since risen nearly 12% to close Tuesday at $59.43.

Shah isn’t alone in boosting his target. Evercore ISI analyst C.J. Muse has an outperform rating on Micron and just boosted his price target 33% from $60 to $80. Even though Muse’s target is $20 per share below Shah’s target, it still represents more than 34% upside from today’s close.

Shah said memory prices are down just 3% this year compared to the typical 10 to 20% decline seen in the first quarters of the last three years. He predicts prices will rise by 10% within the next 6 months.

“Our research indicates that suppliers will begin raising prices in Q2 and Q3,” Shah wrote. “This outlook sharply contrasts with Street expectations of a 5-6% sequential decline in each of the following 4 quarters (May – Feb 19).”

And Muse contends that the “memory market is absolutely different now,” given that the DRAM industry now has just three main producers. Further, these manufacturers aren’t flooding the market with supply which inevitably crushes DRAM prices.

Micron recently announced an analyst and investor day on May 21.

“During this event, we expect a comprehensive capital return program that, among other things, will demonstrate management’s confidence in future cash flows,” Shah wrote.

Micron is one of the best performing stocks so far this year, with shares up 36% since the beginning of the year. The stock also trades at a low valuation. Should the rally Shah is predicting take place, MU will command a more reasonable valuation.

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