Analysts See Opportunity in Micron Technology on Strong Reports and Higher Q4 Guidance

In reports published on Thursday, multiple analysts saw buying opportunities in Micron Technology (NASDAQ: MU) following a third quarter that came in ahead of estimates and stronger fourth quarter guidance. Analysts from JP Morgan, Morgan Stanley, Bank of America, Piper Jaffray, Wedbush, Stifel Nicolaus, Jefferies, Stifel Nicolaus, Sterne Agee and Nomura all gave positive or neutral ratings with price targets in the range from $14.00 to $21.00.

JP Morgan analyst Harlan Sur believed strong memory capacity and strong demand fundamentals will continue to drive business outlook. With a strong revenue of $2.3 billion versus estimated of $2.25 billion, Sur noted, "Solid F3Q revenue due to strong DRAM and NAND revenues. We believe both DRAM product revenues (47% of sales) and NAND product revenue (40% of sales) benefited primarily from a near-perfect supply/demand environment. NOR was flat in F3Q (8% of sales) but is expected to decline ~33% Q/Q as the wireless segment transitions to NAND-based solutions."

With Elpida acquisition expected to close in fourth quarter, stronger sales are expected. Bank of America analyst Simon Dong-je Woo noted the company's stronger ASP and low capex. Furthermore Woo expected low risk factors by noting, "Spot still shows upside (potential shortage of DRAM and NAND), while execution risks (Elpida fab operation using Elpida's proven 25nm tech, Micron's new 20nm DRAM and 16nm NAND deployments) should be low, given the good track record (M&A know-how, tech leadership using proprietary tech, etc.)."

Morgan Stanley analyst Joseph Moore worried about overpaying but saw exceptional pricing environment with EPS going up. Moore noted in the report, "We have been too conservative since initiating in April, as exceptional DRAM pricing, prospects for Elpida accretion, and potential for structural improvement power the stock higher. Our 2014e EPS of $1.72 is near 13 year highs; we aren't forecasting imminent slowing. But normalized earnings power is closer to $1 even assuming structural improvement (8% op margins, vs. a 4% op loss cumulatively over the last 6 years), a level that leaves the stock fully valued. We don't want to overpay for peak earnings for a stock with such high EPS volatility. Stock likely continues higher short term as consensus $0.69 rises to reflect the (partly non-cash) EPS benefits of the Elpida deal, and pricing stays strong, but if it does we will become increasingly cautious."

With 47 percent of total sales in DRAM, higher leverage from Inotera were seen as it has the lowest cost. Piper Jaffray analyst Jagadish Iyer noted the higher DRAM supply for the rest of the year by stating, "As Micron manages its bit supply for '13 and '14 versus the industry, it is forecasting DRAM supply up in the mid 20% range this year and low to mid 20% in CY14. NAND supply is expected to be up in the mid 30% this year and in the low 40% in CY14. NAND bits are expected up high single digits in F4Q13 while NAND ASPs are expected to be down mid single digits on higher density sales in SSDs. DRAM bit growth is also expected to be up in the high single digits % with ASPs climbing in the mid to high single digits %. No major capacity additions are planned as MU converts some DRAM capacity to NAND."

Micron Technology closed Wednesday at $13.97.