The Hot Stock: Move Over For Micron

@MicronTechnology (MU) surged to the top of the S&P 500 after posting blow out fiscal fourth quarter results and an upbeat outlook for the current quarter.  Micron's "3D Xpoint" solid-state memory technology for servers. Micron gained more than 8.5% today to close at just over $37 a share, making it the day’s best-performing stock. The shares continued to edge higher after the closing bell. My colleague Tiernan Ray dove into the semiconductor company’s performance earlier today, and interviewed CEO Sanjay Mehrota. Analysts were encouraged by rising margins, as well as the company’s outlook for a nearly 50% increase in capital spending by Micron to a planned $7.5 billion this year.  Barclays Blayne Curtis called it “a beat and raise” quarter with healthy trends that will likely continue into next year. FY18 capex guidance of $7.5B (35-45% allocated to each DRAM /Flash) was on the high side but MU plans to keep bit growth in line with the market at +50%/+20% in NAND/DRAM respectively, similar to what we heard on our Asia trip several weeks ago. The absolute amount of capex dollars is going up for all, but the company is progressing with their technology development and in general not trying to outgrow the market (likely remains undersupplied through next year, particularly in NAND). Even with the higher capex, MU plans to be net cash positive exiting FY18. Net net, the story continues to have additional legs as the market remains undersupplied into FY18 driving both revenue and margins. And Credit Suisse’s John Pitzer raised his price target on the stock from $40 a share to $50 a share. Big CapEx A Big Positive: For too long MU has been content as a fast follower (300 mm, Cu interconnect) – which has hurt MU’s costs. Even with CapEx of $7.5 bb, CFO endorsed possibility of net cash positive in FY18 implying cash flow from ops. of ~$13.2 bb versus our current estimate of $12.2 bb.

http://www.barrons.com/articles/the-hot-stock-move-over-for-micron-1506547282