Are Analysts Overly Bullish on Micron?

Memory for computers and other consumer electronics is currently in high demand, which puts memory producers such as Micron Technology Inc. (NASDAQ: MU) in a favorable position. However, past companies in similar situations have been tempted by these profits to overproduce, leading to inflated inventories, falling prices and eventually a bust for shares. Some analysts are saying if Micron keeps following the path it is on and exercises discipline on its supply, it can stand to gain another 50% on its shares.

This increasing demand for memory expects to meet unrestrained supply in the coming years, to the point where manufacturers are tempted to relax their discipline on supply. New, more difficult chip advances continue to be made that should keep them in check.

Credit Suisse sees Micron as significantly undervalued and has noted to investors that big data is the most important driver of its bullish view on memory. Also, that investors are missing with their focus on supply.

24/7 Wall St. has tracked some of the most recent post-earnings analyst calls as well. Credit Suisse maintained a rating of Outperform and $50 price target. Sterne Agee analyst Vijay Rakesh maintained a Buy rating and price target of $42. Bank of America Merrill Lynch has a Buy rating and a $43 price target. Wells Fargo has an Underperform rating, but last week the firm raised the valuation range to $22 to $28, noting that it is “still cautious.”

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When you see that a stock can make another 50% run after it has risen roughly a 300% since the end of 2012, you can’t ignore it. At the same time it may be too good to be true. 24/7 Wall St would also like to note that the group of investors might have changed after recent earnings reports. This often occurs when stocks change their stripes, from looking like a hyperactive growth and turnaround story into a maturing value stock. The acquisition of Elpida in July 2013 played a huge role in accelerating the growth of Micron within this past year. Micron shares have been pushing relative highs over this time.

Jack Hough from Barron’s reported:

A rise in the stock price to $50 over the next year would put Micron at 12 times forward earnings estimates, still a 20% discount to the broad semiconductor group, which includes processor and equipment makers. It’s a valuation that acknowledges memory’s continued exposure to swings in the economy, but also recognizes that the group’s wildest swings in profitability are likely behind it.

Micron CEO, Mark Durcan, told Barron’s last week:

Customers are coming around to the view that the memory market has changed and tight supply will last. More are looking to lock in long-term supply deals rather than buy as they go and wait for prices to come down.

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In the first hour of trading, Micron shares were down 2.8% to $32.99, from the previous close of $33.94. The stock has a consensus price target of $40.27 and a 52-week trading range of $16.17 to $34.85. Its market cap is $36 billion and it is currently trading at 8.26 times its future earnings.