Bank of America decided to change it’s tune and join the bullish analyst party on shares of Micron. Less than 3 months ago Bank of America did not believe that EPS could go much north of $2 per share.
“Our Underperform rating (vs. a Buy until 21 Nov 2013) is based on a massive stock rally exceeding our up-cycle fair value (as of 19 Dec), a bigger threat from competitors’ (Hynix’s new fab plan, etc.) and weaker-than-expected chip prices (led by NAND). We also worry about the greater downside to DRAM spot and execution risk for new tech deployment (2xnm inferior to Korean peers). We disagree with the bullish consensus, as EPS growth is unlikely to be strong once it hits $2.
Bank of America has officially lifted it’s “underperform” rating and $19.10 target and replaced it with a buy rating and a $40 target.
“We upgrade our rating on Micron from Underperform to Buy with a new PO of $40.0 (FY15E implied P/E 14x, PBR 3.1x). The stock has already moved up strongly (up 33% YTD) but we think further upside will occur,In our view, key catalysts are solid chip pricing environment (tight supply) and cost competitiveness.
“Our EPS revisions for FY15-16E are c.50% on average at higher/lower ASP/cost. We also expect dividend payment from FY15-end. Lower cyclical risk and higher shareholder return lead to bigger EVA (WACC down vs ROE up); clearly a different cycle.”
Shares of Micron are trading at over $30, which is the highest levels seen in over 10 years.
Disclosure: I am long shares of Micron and maintain a $61 price target that was issued in April.
For in-depth coverage on my top picks check out my PTT Research Forensics Newsletter and be the first to know my next move!