The company's earnings beat validates recent pricing recoveries in the dynamic random access memory space.
Following a tumultuous fiscal 2016, Micron
kicked off its fiscal 2017 with solid first-quarter results that served to validate recent pricing recoveries in the dynamic random access memory, or DRAM, space. Furthermore, margins were boosted by ongoing technology transitions toward advanced 3D NAND flash that feature significant cost reductions from Micron’s planar NAND predecessors. We expect 2017 to be considerably stronger for this memory provider, particularly with more favorable supply-demand dynamics in DRAM and constrained supply growth due to industrywide 3-D NAND technology transitions, both of which will solidify overall average selling prices. Shares reacted positively to the earnings beat and stellar guidance provided, increasing nearly 10% during afterhours trading. We will likely modestly increase our fair value estimate to $24 as we incorporate superior expectations for fiscal 2017. That being said, we think shares are appropriately valued at current levels for no-moat Micron.
Abhinav Davuluri is a senior equity analyst for Morningstar.
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