Why We Upgraded Micron’s Price Estimate To $45
Hitting record revenue, non-GAAP earnings per share (EPS), and operating cash flows, Micron Technology (NYSE:MU) saw a strong performance throughout the year, primarily driven by stronger DRAM ASPs and higher NAND bit volumes. Global DRAM prices have been on the rise since June 2016, on account of higher DRAM content in mobile devices and significant under-supply of PC DRAM and a slowdown in capacity expansions. Prices should remain firm over the next year as well, with Global DRAM bit supply forecast to grow by 19.6 % in 2018, with bit demand growing at a higher rate. The company continues to see a positive industry environment, which – combined with additional bit growth from current technologies and progress on deploying the next-generation technologies into manufacturing – suggests a positive growth outlook.
We have a $45 price estimate for Micron’s stock, which is slightly below the market price.
In addition to the positive pricing environment and higher bit volumes in DRAM and NAND, the improving product mix (towards higher value-add solutions) is an important factor driving the company’s growth momentum. Moreover, Micron, along with Samsung and SK Hynix, controls much of the supply in the DRAM market.
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Demand for DRAM is expected to grow amid continued demand from mobile vendors, who have been increasing the processing power of their devices as they look to cater to graphics-intensive applications such as gaming and virtual reality. Trends such as machine learning and analytics are also stoking a need for more memory from the data center market. The production technology execution, as well as the bit growth and cost reductions, has enabled Micron to significantly strengthen its cash flows and financial performance in the last few quarters. Micron expects the favorable demand-supply environment to persist going forward, supported by continued strong growth in both DRAM and NAND demand, reflecting broader trends in the data center and mobile markets as well as increased adoption of SSDs across enterprise, cloud and client PCs.
See our complete analysis for Micron here
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