Micron Rallies As Barclays Upgrades To Overweight

Micron Technology (MU) shares are trading sharply higher after Barclays Capital analyst Tim Luke this morning upped his rating on the stock to Overweight from Equal Weight, while boosting his price target to $7, from $5.

Luke writes this morning that “the demand picture remains subdued and uncertain,” but that conditions are improving on the supply side of the equation. “After years of excess, the industry may be poised to see the benefits of significant reductions in capital spending and bit growth combined with further vendor consolidation,” he writes. He contends that DRAM and NAND pricing may continue to edge upward into the second half, with potential for further improvements in the memory cycle in 2010.

Luke contends that Micron “may be poised to benefit” from a dramatic reduction in industry capital spending, and an improving cost picture as a leader in NAND and DRAM production. He adds that worries about MU’s balance sheet have been partially addressed with a recent $450 million capital raise.

Luke boost his EPS estimate for the August 2010 fiscal year to a profit of 6 cents a share from a loss of 13 cents. He notes that the stock despite a recent bounce as of yesterday traded for just 0.7x book.

He does say that there is some risk that the company could make a bid to buy NOR flash specialist Spansion (SPSN), which is now in Chapter 11, but that management is only likely to do that if the deal were cash flow accretive. He also notes that some new uncertainty about the path for Taiwan Memory Co., the government-created company intended to help bail out Taiwan’s memory chip business, bolsters the outlook for industry. ( No bailout would likely mean additional capacity reductions by Taiwan’s struggling DRAM companies.)

MU today is up 44 cents, or 9.8%, to $4.94.