Shares of computer-memory maker Micron (MU -2.44%) are up a strong 6.7% in mid-morning trading Monday, at around 10:50 a.m. EDT. If you own shares of the stock, you can thank Goldman Sachs for that.
This morning, Goldman upgraded shares of Micron to buy, and assigned the $49 stock a $58 price target, reports StreetInsider.com.
Prices of both DRAM and NAND computer memory are currently depressed but expected to revive. Goldman predicts the price weakness "will be short-lived" and says that Micron is "well-positioned competitively" to profit as prices improve over the longer term.
Despite this prospect, Micron shares are down 8% over the past year in a stock market that's up 11%. Goldman believes that this is the market valuing Micron shares based on "the near-term pricing dynamics" in flash memory. However, as suppliers limit the amount of memory they produce (imposing "supply discipline"), prices will stabilize, and Micron's share price will benefit.
Goldman is projecting a $58 target price for Micron stock today, but investors should be aware that the range of possible outcomes, based on how memory prices move, is exceedingly wide on this one. On the one hand, in a bullish scenario, the analyst notes that Micron shares could nearly triple in value, rising 183% from today's prices. In a bearish scenario where cyclical memory prices deteriorate further, however, the analyst sees as much as 49% additional downside in the stock.
With Micron currently generating less than $300 million in trailing free cash flow on a near-$50 billion market capitalization, that's not a risk you should ignore.