Micron Technology, Inc. (NASDAQ:MU) is strategizing in issuing $1 billion in an equity offering to buy back around $438 million of its 7.5% Senior Secured notes due in six years, which led to what top analyst Vijay Rakesh at Mizuho deems a “modestly overdone” sell-off in after-hours trading. Bulls should view any short-term apprehension as an enticing buying opportunity, argues the analyst, who has become even more confident on the semiconductor stock on back of stellar DRAM/NAND fundamentals.
Approaching “strong memory peer earnings reports” while likewise recognizing compelling potential for long-term gains down the line, the analyst reiterates a Buy rating on MU stock while lifting the price target from $40 to $45, which represents an 8% increase from current levels.
For fiscal 2018, the analyst looks for the chip giant to yield $24.1 billion in revenue and $7.61 in EPS. For fiscal 2019, the analyst calls for Micron to generate $23 billion in revenue and $6.69 in EPS.
In addition to seeing half of the proceeds likely thrown towards senior notes, Rakesh also anticipates notes Micron will “accelerate de-leveraging, offsetting the dilution” and “fund some of its onshore capex,” elaborating: “The de-leveraging is expected to mitigate the ~15c EPS impact down to ~10c, or a ~$0.50 impact on the stock price assuming a 5-6x P/E.”
“Capex deleveraging [is] a key company focus with some opportunistic share repurchases. MU noted it currently has ~$11.6B of gross debt, and expects to bring it down to ~$8B of debt on its way to investment grade in ~two years. While it has ~$6B of cash, only ~50% of the cash is onshore, while 90% of F18E cash generation is offshore, so that the cash generated from the offering becomes important for deleveraging as much of the debt and converts (~$5B) are U.S based onshore with offshore debt much smaller at ~$2.5B which includes the Elpida and Inotera financing. Longer-term, MU expects some opportunistic share repurchases to drive shareholder returns,” contends Rakesh.
Vijay Rakesh has a very good TipRanks score with a 76% success rate and a high ranking of out #24 out 4,694 analysts. Rakesh garners 27.6% in his yearly returns. When recommending MU, Rakesh realizes 72.1% in average profits on the stock.
Wall Street is a fan of this chip giant right there with Rakesh, as TipRanks analytics exhibit MU as a Strong Buy. Based on 23 analysts polled by TipRanks in the last 3 months, 21 rate a Buy on Micron stock while 2 maintain a Hold. The 12-month average price target stands at $49.86, marking a nearly 20% upside from where the stock is currently trading.