Earlier this month, Micron (NASDAQ:MU) has entered into a Credit Agreement with various lenders, which provides the chip giant with a $2 billion revolving credit facility that matures 5 years after the effective date. The Revolving Credit Facility includes a $200 million letter of credit sublimit.
Nomura analyst Romit Shah apparently liked the news commenting, “This is really interesting in our opinion because at the analyst meeting in May Micron guided to a target liquidity model in the low 30% range of sales. Adding $2.0 billion in revolving credit to an estimated $8.0 billion in total cash would put Micron’s liquidity at $10.0 billion, or roughly 33% of revenues, exiting the month of August. This, to us, strongly suggests that every dollar of free cash flow could be used to repurchase the stock, which management has repeatedly indicated is cheap at current levels.”
“The punch line is that if earnings don’t grow from the August period, MU could repurchase $10 billion of the stock (15+ percent) over the next four quarters, boosting EPS by an estimated $1.50 year over year,” the analyst concluded.
Net net, Shah reiterates a Buy rating on Micron shares, with a price target of $100, which implies an upside of 77% from current levels.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Romit Shah has a yearly average return of 16.9% and a 63% success rate. Shah has a 58.0% average return when recommending MU, and is ranked #254 out of 4843 analysts.
If we step back and look at the bigger picture, we can see that overall the stock has a ‘Strong Buy’ analyst consensus rating. Out of 22 analysts polled in the last 3 months, 18 are bullish on Micron stock, while 4 remain playing it safe on the sidelines. Is the stock overvalued or undervalued based on these analysts’ expectations? Consider that the 12-month average price target of $83.95 suggests a nearly 49 upside potential from where the stock is currently trading.