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Zacks Investment Research upgraded Micron Technology (MU - Analyst Report) to a Zacks Rank #1 (Strong Buy) on Sep 3, post its impressive third-quarter results and the Elpida acquisition.

Why the Upgrade?

Micron swung to profit in the third quarter after reporting losses for seven consecutive quarters primarily aided by favorable memory market conditions that led to higher shipments and an improved average selling price (ASP).

Micron reported revenues of $2.32 billion, up 6.7% year over year and 11.5% sequentially. Moreover, the company’s earnings of 4 cents per share beat the Zacks Consensus Estimate of 3 cents and improved considerably from the year-ago quarter’s loss per share of 32 cents. Additionally, margins expanded due to higher sales and lower-than-expected costs.

Moreover, the growth in mobile, server, networking enterprise and embedded markets bode well for its memory chips. Micron is also optimistic about supply/demand balance for DRAM (Dynamic Random Access Memory) and NAND memory chips in 2013 and 2014.

The chip maker expects industry-wide DRAM wafer capacity to fall, which will bring down the supply, ultimately boosting ASP. Micron is confident of the growing demand for NAND due to increasing use of solid state drives in smartphones.

Apart from these factors, the Elpida acquisition is a big positive for Micron. Also, the fact that Elpida has won a major DRAM supplying contract from Apple Inc. (AAPL - Analyst Report) will give Micron another reason to cheer. With the acquisition, Micron’s wafer manufacturing capacity will increase nearly 50%.

With the acquisition, the number of leading DRAM chip manufacturers will drop to three, namely, Samsung (the market leader), Micron and Hynix Semiconductor. Previously, Hynix was ahead of Elpida while Micron had the lowest market share of the lot.

Other Stocks to Consider

Besides Micron, other stocks with favorable Zacks Ranks are Portfolio Recovery Associates Inc. (PRAA - Analyst Report) and SanDisk Corp (SNDK - Analyst Report), both of which carry a Zacks Rank #1 (Strong Buy).

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