On Monday before the opening bell, analysts at Goldman Sachs switched Micron Technology Inc (MU) from Neutral to Buy. The Target Price (PT) of $ 58 represents a potential increase of 26% from the Friday closing price. So why the renewed support from Micron?
Micron Technologys’ new buy rating from Goldman Sachs reflects signs of improving competitive positioning within DRAM & NAND markets. Over the past five years, Micron has closed the capital expenditure gap of around 200 basis points with competitors such as Samsung in the DRAM market. On the other hand, Micron now surpasses all of its competitors, except Samsung, in the market for NAND products. Their commitment to increase CapEx for higher volumes than their competitors in the DRAM and NAND markets is part of the reasons Goldman Sachs sees a positive outlook for the future of Microns.
Based on Microns’ improvement in their industry, Goldman Sachs considers the risk / reward of equities to be positive. The current price / tangible book value (P / TBV) multiple of microns is 1.4x, slightly above the multiple of 1.1x at their previous low and below the three-year median of 1.8x. While it is possible that they could eventually have a P / TBV hovering at 1.1x, growing market share within the industry and improving free cash flow (FCF) indicate potential. up for action. After running an internal probability model, Goldman Sachs predicts that if stocks traded in line with its 2014 high, there could be potential value creation of up to 183% (in the most bullish case).
While analysts remain bullish on the stock, some risks have been expressed in the note and need to be considered by investors. These potential risks included a lack of supply discipline, weaker than expected demand, and an inventory review. The number of competitors in the NAND market could reduce Micron’s market share by causing oversupply. On the demand side, if support is weaker than expected, it could exacerbate the problem of oversupply. The inventory overhaul could drive up supply prices for Micron and potentially lower industry prices.
Investors appear to share Goldman Sachs’ optimism as Micron stock is up around 6% today, close to $ 49 at time of publication).
Disclosure: At the time of publication, we do not have a position on any of the titles mentioned in this article. We wrote this article ourselves and it expresses our own opinions. We do not receive any compensation for the creation of this article (other than from TheStreet) and have no business relationship with any company whose action is mentioned in this article.
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