Boise, Idaho-based semiconductor manufacturer Micron Technology Inc. (MU) continues to garner applause from analysts who recommend buying its stock ahead of its quarterly earnings report slated for Sep. 26. (See also: Micron PT Lifted on Favorable Profit Margins.)

Deutsche Bank’s Sidney Ho reiterated his buy rating on MU shares and lifted his price target from $37 to $42, foreseeing the stock gaining another 16.5% over the next 12 months from Wednesday afternoon's $36.06. The analyst attributed the more bullish outlook to better-than-expected memory chip pricing in advance of the fiscal Q4 report next Tuesday. Ho suggests that while near-term strength in pricing has mostly been anticipated, investors have underestimated the staying power of the current memory chip cycle, particularly for DRAM chips.

DRAM, NAND ASPs Up Q/Q

Further, the bank indicates that “disciplined capex by memory suppliers will prolong this upcycle, and we will continue to monitor industry supply that could disrupt the market.” Ho expects capital spending to rise from an approximate $5 billion this fiscal year to between $6 billion and $7 billion next year.

Based on recent research and comments at Deutsche Bank’s tech conference, Ho and his team expect both DRAM and NAND average selling prices to increase 2% to 3% quarter-over-quarter, compared to prior estimates of a 4% to 5% decline q/q.

The analyst now expects Micron to beat estimates in both the current Q1 2018 and on Tuesday, forecasting the chipmaker to post earnings of $1.90 per share versus the consensus for $1.83 for Q4 2017. Ho raised his outlook for Q1 to $2.05 earnings per share (EPS) on revenue of $6.3 billion, compared to his previous forecast of $1.71 EPS on revenue of $5.95 billion, and exceeding the Street’s forecast at $1.77 EPS and $6 billion in sales. (See also: Stop Worrying and Buy Micron: Morgan Stanley.)

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