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Micron (MU) Plans for Public Offering of $1B Common Stock


Micron Technology, Inc. MU, a semiconductor company, plans to offer an underwriting public offering of $1 billion common shares to enhance liquidity. The company’s shares rose 2.5% in yesterday’s trading session.

Further, Micron anticipates the underwriters to be provided with a 30-day option to purchase up to additional $150 million common shares to cover any over-allotments. The offering is subject to customary closing conditions.

Micron intends to use $476 million of the net proceeds from this offering for the repayment of 7.500% senior secured notes of $438 million in aggregate principal amount (due in 2023) and also pay related fees and expenses. Additionally, the remaining proceeds would be used for general business purposes and repayment of outstanding debts.

The only underwriter for the offering is J.P. Morgan Securities LLC. Notably, shares of Micron have moved up 150.2% in the last one year, significantly outperforming the industry’s 41.5% rally.

The enhanced capital deployment reflects Micron’s strong balance sheet as well as its confidence in long-term business prospects. During the fiscal 2017, the company generated operating cash flow of $8.153 billion.

The company exited the fiscal fourth quarter with cash and short-term investments of $5.428 billion compared with $4.330 billion in the previous quarter. Based on this performance, Micron expects to spend more on research and development, capital expenditures and acquisitions, and at the same time devote more cash for stock repurchases.

The only concern persisting is its liquidity, since Micron’s net cash position remains negative ($4.444 billion in the last reported quarter). Particularly so, since growth opportunities look limited in the near term, given the sluggish demand environment.

In the stringent regulatory landscape, this offering is expected to further enhance the balance sheet as well as support future growth. Additionally, it will assist the company to bring down its cost of capital.

Bottom Line

It is worth mentioning that the acquisition of Inotera in December 2016 will have some operational benefits, leading to efficient management of investment levels and cadence, followed by alignment with global manufacturing operations.

Micron is positive about the product launches and growing demand, particularly that of SSD products. We also believe that any increase in prices will have a favorable impact on the company’s overall results. We anticipate these benefits to be a tailwind for the company, going forward.

However, after acquiring SanDisk, Western Digital Corporation WDC has become a key player in the NAND space, which could intensify competition in the industry.

Currently, Micron sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks worth considering in the technology sector are NVIDIA Corporation NVDA and Applied Materials, Inc. AMAT, both flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA and Applied Materials have a long term-expected EPS growth rate of 10.3% and 17.1%, respectively.

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