Micron has declined 20% from its recent peak and is now trading at seven times our fiscal 2016 earnings-per-share estimate, and we believe estimates could move higher. Our discussions with the channel and SanDisk’s ( SNDK ) results lead us to believe that memory demand remains healthy. Micron should benefit from a strong DRAM and NAND environment in 2015. Our price target of $37 is based on nine times our fiscal 2016 EPS estimate of $4.08.

Discussions with Samsung and Hynix [both of South Korea] suggest that DRAM wafer capacity will remain relatively flat at both companies. We expect balanced supply/demand for both DRAM and NAND in 2015, which benefits Micron.

Our recent checks suggest that DRAM pricing remains strong in this seasonally weak quarter; first-half October PC DRAM pricing is up 2.4%. Also, discussions with Samsung and Hynix suggest that total wafer capacity at both will remain the same, even after adding capacity. Moving from 25 nanometers (nm) to 20 nm is leading to 10% wafer loss for DRAM vendors and Samsung is adding 40,000 wafer starts per month (WSPM) of new capacity to account for the wafer loss. Controlled DRAM capacity additions and strong demand from a server upgrade cycle and mobile DRAM should lead to healthy DRAM pricing in 2015, in our view.

About 100,000 WSPM of new NAND capacity came online during the first half. However, we do not expect any meaningful new NAND capacity in 2015. This should lead to a tight NAND environment and better pricing for 2015. All the semiconductor-capitalization companies have talked about delays in 3D NAND equipment sales, which supports our view of limited 3D NAND in 2015.