Shares of Micron Technology, Inc. (MU) rallied over the past couple of weeks, following reports of DRAM prices potentially reaching a bottom, and expectations of NAND supply being tight in 2H16. Goldman Sachs’ Mark Delaney maintained a Neutral rating for the company, while raising the price target from $10 to $13.

Micron’s shares have jumped 19 percent, versus a 6 percent increase in SOX. Sources like DRAMeXchange and Digitimes have indicated a possible bottoming of DRAM prices and a likely tightening of NAND supply in 2H16.

Analyst Mark Delaney said that while weakness in PC and server DRAM continues, views on the 2H outlook are varied. He expects DRAM and NAND supply/demand to improve in the back half of the year due to normal seasonality, higher content per smartphone, and low 3D NAND yields.

“That said, we believe DRAM prices will continue to decline (in part as both Hynix and Micron built meaningful DRAM inventory last quarter that we estimate amounts to 2-4% of quarterly DRAM supply),” the analyst wrote.

While raising the 2H16 estimates to reflect higher sales and margins, Delaney noted that there was still significant downside to Street EPS expectations. Micron is likely to burn more than $2bn of cash in 2016. The company had recently raised around $2bn of new debt for general purposes, along with the debt for the Inotera acquisition, and these don’t seem to be included in the consensus forecasts.

The EPS estimates for FY17 and FY18 have been raised from $0.35 to $0.60 and from $0.85 to $1.00, respectively.

By: DocMemory
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