Why Micron Technology, Inc. Might Keep Soaring in 2014

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Micron Technology  (NASDAQ: MU  ) gained about 1% this morning after Nomura Securities upgraded the semiconductor solutions company from Neutral to Buy.

So what: Along with the upgrade, analyst Romit Shah boosted his price target to $30 (from $16), representing about 33% worth of upside to yesterday's close. While value investors might be turned off by the stock's sharp rise in 2013, Shah believes there's plenty of room to run given his forecast of continued DRAM consolidation in 2014.

Now what: Nomura raised its EPS estimate for Micron from $2.60 to $2.80 in 2013 and from $2.20 to $2.80 in 2014. "We were skeptical whether DRAM pricing strength would continue following the production recovery at SK Hynix's lab. In our view, the benefits of consolidation look more sustainable this time," noted Nomura: "Our bullish view on DRAM is predicated on disciplined supply growth and does not require a strong rebound in demand. Instead, we view the bar for demand as set low, with risks to the upside." When you couple Micron's still-hefty debt load with its red-hot stock price (up nearly 240% over the past year), however, I'd wait for a much wider margin of safety before buying in.

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12/19/2014 4:00 PM
MU $34.49 Up +0.04 +0.12%
Micron Technology,… CAPS Rating: ****

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