The stock of Micron Technology Inc. (NASDAQ: MU) has been trading higher since the early morning on Thursday. As of the time of writing, the stock of Micron is changing hands at $14.03, up by 3.85 percent or 0.52 points.
There are two major catalysts for the recent stock rally. The first one is that Nomura revised its earnings forecast for the semiconductor giant amid the better pricing of DRAM, as well as the approval of Apple Inc for Micron’s 20nm technology. The second reason is that Pacific Crest has pointed out that semiconductor firms will be subjected to pressure to push through with transformational acquisitions, and this may include a number of big names.
Romit Shah, an analyst at Nomura, is under the belief that DRAM prices are recovering and this could boost the top line and bottom line of the company. The Nomura analyst strongly recommends investors to buy the stock of Micron especially in the current softness.
According to Shah, DRAM prices are close to turning bullish for the first time in around 2 years. The analyst stated that the pricing remained steady to up every month from the low in the month of November in 2012 to a high in the month of December in 2013. In addition, average selling prices (ASPs) were steady to down for 28 months out of the total 30 months starting the month of January in 2014 to the month of June this year. Yet, the pricing has strengthened in recent times.
Based on the analysts’ estimates, contract pricing grew by 7 percent on a month-over-month basis last month. This development shows that there is an enhancement in servers and specialty DRAM. Although the mobile segment has been weak, the semiconductor giant’s latest qualification at Apple should aid in the improvement of the company’s profitability.
For fiscal year 2017, analysts estimate earnings per share of negative $0.27, while the earnings per share for fiscal year 2018 is projected to stand at negative $0.56. The analyst reaffirmed his rating of Buy for the stock of Micron, and set a price target of $16.
“We are nearing the later stages of the M&A cycle within the semiconductor industry. Empirical data, such as increasing deal sizes and valuation over the past four years, support this view,” said Mr. John Vinh of Pacific Crest.
The analyst further stated that as smartphone and PC markets mature, the business will be forced to push through with takeovers.
The Pacific Crest analyst also asserted that the latest huge purchases, such as Analog Devices & Linear Technology and SoftBank & ARM Holdings, have gone against his models for mergers and acquisitions (M&A). While Vinh does not expect Micron to be a potential acquisition target, the analyst believes that the company’s assets could be in play.