Vetr Upgrades Micron to “Strong-Buy” Rating

Vetr Upgrades Micron to “Strong-Buy” Rating

 
Following a gloomy report on semiconductor prices by Morgan Stanley, the stock of NAND and DRAM memory chip manufacturer Micron Technology, Inc. (NASDAQ: MU) fell by about 10% last week to close at $42 levels. Three analysts at Morgan Stanley had downgraded equal number of memory chip manufacturers in Asia. As explained below, the sharp fall presents an opportunity to buy the stock at an attractive price.

Last week, citing lower NAND memory chip prices, Morgan Stanley analysts downgraded the rating of three semiconductor manufacturers to “overweight”, from “equal weight” rating. While Katy Huberty cut the rating of Western Digital, Charlie Chan downgraded Taiwan Semiconductor. Another analyst Shawn Kim lowered the rating of Samsung Electronics.

Morgan Stanley analysts believe the price of memory chips would see a reversal as the industry has benefitted immensely from strong demand and unexpected rise in price over the past few months.

However, in the report titled “ Time for a Pause”, analyst Kim categorically says that if the semiconductor stocks decline, then he would recommend buying the stock of Micron, as the fundamentals of DRAM memory chips are better than flash memory chips. Kim also maintained his “over weight” rating for the stock of Micron.

Further, Micron is better positioned to meet the challenges faced by the semiconductor industry than any other memory chip maker and cater to the rising needs of companies manufacturing desktop PCs, tablets, smart phones, and laptops.

Notably, cloud-computing, Internet of Things (IoT), and autonomous vehicle industry are witnessing high growth rate. They are expected to drive demand in the years to come. The company is already diversifying into these sectors.

The company has also started selling SSDs (Solid State Drives) to manufacturers and consumers directly to realise better margins. Micron plans to increase the portfolio of products in 2018.

The company recently launched a 64-layer NAND technology. The technology, named as 3D NAND, developed in partnership with Intel, can produce more bits per wafer than the previous 2D NAND technology. Thus, it provides more storage without any change in the chip area.

In a recent analysts call, the CEO of Micron, Sanjay Mehrotra, reaffirmed the company’s growth outlook range of 20% to 25% for DRAM. The company also said that it expects a slightly higher growth rate for flash memory.

Considering the growth prospects, investment research firm Vetr has upgraded the “buy” rating of Micron to a “strong buy” rating. The firm has provided a price target of $52.11 for Micron. Thus, we forecast a bounce back in the stock of Micron.

The price chart indicates that the stock has bounced off the support at 39.50. The RSI indicator has formed a positive divergence with the price, while moving out of the bearish zone. Thus, we expect the stock to rally in the short-term.

Micron - Technical Analysis - 5th December 2017

We prefer to trade a call option to gain from the probable rise in the stock’s price. The option should be valid for a period of one week. Additionally, the stock should be trading near $39.50 in the NASDAQ.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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