On Wednesday, Wolfe Research demonstrated confidence in Micron Technology (NASDAQ:MU), increasing the share price target to $120 from the previous $100. The firm maintained an Outperform rating on the shares.
The revision in the price target to $120 is grounded in an earnings per share (EPS) estimate of $8.39 for the calendar year 2025, which is valued at approximately 14 times the EPS. This valuation is slightly higher than Micron's historical average EPS multiple of around 11 times.
Wolfe Research identified several potential catalysts for Micron's improvement, including the normalization of datacenter inventory, better pricing, the impact of high-bandwidth memory (HBM), and a return to normalcy following disruptions in China.
Wolfe Research anticipates that Micron's gross margin percentage estimates for the second half of fiscal year 2024 could see an upside, currently expected to be in the high teens to mid-20s range. This potential increase is attributed to anticipated higher prices. Furthermore, the firm foresees a more robust recovery in fiscal year 2025.
Despite Micron's stock currently trading at 14 times Wolfe Research's estimated EPS of around $7 for fiscal year 2025—a figure that surpasses the company's typical historical range—the firm believes the supply and demand imbalance caused by HBM could propel Micron's EPS beyond the previous mid-cycle earnings of $6 and peak earnings of $12.
Wolfe Research also considers the consensus for calendar year 2025, which forecasts an incremental revenue of just $9 billion, to be conservative. The firm expects the impact of HBM could contribute several billion dollars in revenue, in addition to the benefits from pricing and volume in Micron's traditional business.
With the early stages of recovery in play, and the potential underestimation of HBM's impact on the company's financials, Wolfe Research has reaffirmed its favorable stance on Micron Technology's stock and has raised the price target accordingly.
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