Markets

Micron (MU) Stock Soars on Two-Bagger Prediction, M&A Speculation

One lesson, among many others, I’ve learned on Wall Street is that it’s never too late to make the right call. And if ever that proverbial train “leaves the station,” there’s nothing wrong to admit you were wrong and chase that train to get back on board - even if the ticket costs more to ride.

And that seems to be the case with many Wall Street analysts, who have now reversed course on Micron’s (MU) growth prospects. On Monday it was Nomura Instinet analyst Romit Shah, who, in a letter to clients, raised his rating on Micron to Buy, while boosting his price target almost two-fold to $100 from $55. That near two-bagger sent Micron stock soaring more than 12%, reaching a new 52-week high of $61.17, from Friday’s close of $54.59.

Once tagging the stock with a Reduce rating back in June 2016, Shah believes that the Boise-based company, which has surged 15% in five days, is on the verge of breaking out even higher. The reason? He sees no headwinds in Micron’s core business and effectively answered the question to, what DRAM pricing problem?

"We see DRAM pricing resuming an upward trend in Q2, a first-time dividend and share buyback announcement in May, continued margin expansion in NAND and increased M&A discussion as important catalysts," Shah noted.

Prior to DRAM pricing inching back higher, Shah noted that DRAM prices are down a “modest” 3% this year. But citing supplier plans, Shah expects an increase in the quarters ahead, saying that even a 500-basis point rise in DRAM pricing has the potential to boost Micron’s annual revenue by $1 billion, while having a 70-cent positive effect on EPS. Beyond the growth in DRAM pricing, Shah sees Micron as a potential M&A candidate.

He believes, among the semiconductor names, Micron is within a small group that has a growing scale. That, combined with the company’s cheap valuation, makes Micron a solid buyout target. While the analysts didn’t mention potential suitors, recent M&A speculation centers on the likes of Broadcom (AVGO), which is currently pursuing Qualcomm (QCOM). Meanwhile, there are reports that Intel (INTC) could be in play for Broadcom.

These reports would suggest either Broadcom or Intel might or should be interested in Micron. Not only do they have the cash to make this deal work, they need Micron to maintain and grow their respective end markets - and in some cases, enter new markets such as automotive and artificial intelligence.

And the urgency for either Broadcom and/or Intel to do a deal now, while Micron is below Shah’s $100 price target to should be high, especially with the stock still trading at enormous discount of six time fiscal 2018 profit estimates. Or either company should have listened to me when I first recommended Micron stock more than a year ago, when it traded at around $23. But as I said, it’s never too late to make the right call.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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