Cowen analyst Karl Ackerman upgraded Micron Technology (MU) to Outperform from Market Perform with a price target of $70, up from $50. The stock closed Monday down 97c to $53.56. The analyst's work indicates DRAM fundamentals may improve earlier than expected. This supports Micron's improved cost position relative to peers, Ackerman tells investors in a research note. The analyst says that while Mircon's NAND cost headwind to 128L is known, his analysis shows overall NAND costs are better than feared and that NAND should become profitable again as new smartphone launches tighten supply. These dynamics should result in not only an expansion of DRAM demand but also an expansion of DRAM average selling prices, contends Ackerman. He finds this "most bullish" for Micron given his view DRAM represents over 100% of the company's total operating profit. The analyst this morning also upgraded Western Digital (WDC) to Outperform from Market Perform.

Sees Q4 revenue $3.6B-$3.8B, consensus $3.69B.

Reports Q3 GAAP EPS 34c. Reports Q3 revenue $3.46B, consensus $3.36B. "As evidenced by our excellent third quarter results, Western Digital continues improving through-cycle profitability and dampening business cycles by leveraging our strategy of developing a diversified portfolio of industry-leading products across a broad range of end markets," said David Goeckeler, Western Digital CEO. "We are in the early innings of unlocking the full potential of this company, and as industry supply and demand dynamics continue to improve, we will remain disciplined around our capital spending and focused on driving innovation and efficiency across our businesses. We are confident in our strategy and the actions we have taken to-date, which successfully position us to capitalize on the promising growth prospects that lie ahead."

Pre-earnings options volume in Western Digital is 1.4x normal with calls leading puts 7:5. Implied volatility suggests the market is anticipating a move near 6.2%, or $4.32, after results are released. Median move over the past eight quarters is 2.1%.