Sometimes stocks just start looking good, and for Citi, one of the most attractive issues around had to be Micron Technology (NASDAQ:MU). So attractive was this issue, in fact, that Citi jumped it from “sell” to “buy” in one fell swoop. It didn't even bother to run it through the “hold” stage first. The immediate question that follows such a development is “what justifies that level of optimism?” The answer that follows, meanwhile, could be the bigger surprise.
Return of the DRAM
The biggest point that gave Citi its optimism surrounding Micron's fate is that the dynamic random access memory (DRAM) memory chip market is poised to make a comeback. Since Micron is one of the biggest names around in DRAM, that's likely to give it a substantial advantage in the field going forward.
Word out of the company's CEO, Sanjay Mehrotra, noted—back during a December 1 Credit Suisse event—that Micron was actually doing quite well producing in the DRAM sector as it was. It was also doing well in producing in Not-AND (NAND) memory as well, but that was a separate matter. Mehrotra also noted that the first quarter was commonly weak for DRAM production, but that the market would likely build the farther in the year went.
Since DRAM serves a range of purposes—it's not only used in cloud computing operations, but also in several common products—it has multiple use cases, and therefore makes an excellent product to sell as there are so many potential buyers. That's good news for anyone who's investing in a memory or storage-focused chipmaker like Micron.
Citi Playing Catchup
Of further good news to those looking to buy or just keep their current position in Micron is the fact that Citi doesn't really have a new idea here. Citi is, in fact, joining a growing chorus of analysts that call Micron a good buy. Our latest research shows that Micron is not only currently a “buy”, but has enjoyed that status for the last six months.
Six months ago, the consensus going into the “buy” rating was made up of one “sell” rating, 10 “hold”, 19 “buy” and one “strong buy.” Today, the consensus is one “sell” rating, six “hold”, 23 “buy” and one “strong buy.” The “sell” and “strong buy” ratings have been constant for the last six months, but “hold” and “buy” have shown change. “Hold” ratings on Micron have been continually dwindling over those six months.
Meanwhile, the price target has been on the rise, but only for the last three months. It slipped from $63.93 six months ago to $61.73 three months ago, but a month ago was up to $64.97 before reaching $71.97 today. Given that the company closed yesterday at $74.05, there may be further revisions to go. Indeed, both Royal Bank of Canada and Deutsche Bank Aktiengesellschaft hiked their price targets earlier today; Deutsche Bank boosted its target from $75 to $85, and RBC jumped from $57 to $83. Citi, meanwhile, ramped up its target from a meager $35 to nearly triple that figure at $100 even.
A Push for More Portable RAM
Not everyone is quite so optimistic, of course; a Zacks Consensus suggests $0.71 per share earnings, while Micron itself is projecting $0.73, which is a fairly narrow beat. Forbes is also looking for downside out of a company that's gained around double its share price since the catastrophe that was March 2020, and that's not out of line. Given that Forbes is only looking for about 20% downside, though, that should be reassuring.
Ultimately, we're dealing with a company that's got a large stake in most of the consumer electronics market. From smartphones to cameras and beyond, DRAM and NAND memory shows up in quite a few of these items, and that gives Micron something of a shovels-in-the-gold-rush situation. Certainly, there could be some downside risk to the company; gains as rapid as those seen already tend to come with a little downside risk as profit-taking measures kick in and people lock in some of those hefty gains already seen. It's also a great way to free up cash for other ventures; after all, when the stock you bought back in March doubles in value, selling 10% or so of your total holdings so you can buy what you hope will be the next two-bagger in the making still leaves you ahead.
Still, it's clear that Micron has a stake in a terrific market. People likely aren't going to stop wanting what Micron is selling, and that sets a certain floor underneath the stock. There's downside risk, of course—probably a bit more so than normal in the short-term—but the long-term propositions do look good for Micron, and for its investors.
Companies in This Article:
