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Micron (MU) Increases Public Offering from 1 to 1.2B Shares

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Semiconductor company, Micron Technology, Inc. (MU - Free Report) , upped the size of its recently-announced public offering deal from 1 billion shares to 1.2 billion shares.

These offerings were made after the company registered with the U.S. Securities and Exchange Commission (“SEC”). Subject to customary closing conditions, this underwritten public offering is anticipated to close on Oct 16, 2017.

According to its filing with the SEC, the company has agreed to sell around 29.3 million shares of its common stock, worth approximately $1.19 billion. In addition to the public offering, the underwriters have been given a 30-day option to purchase an additional 4.4 million shares.

Notably, shares of Micron have moved up 146.9% in the last one year, significantly outperforming the industry’s 43.4% rally.

Proceeds from the Offering

The profits from the stock sale are primarily planned to go toward growth efforts. Further, 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. This public offering will help in diversifying the company's investment options. In fact, as part of the diversification strategy, it will allocate a chunk of the stockholders' equity in a variety of assets.

Though a stock offering results in dilution of earnings, prudent investments in strategic assets are likely to help the company navigate through the challenging rate environment.

The only underwriter for the offering is J.P. Morgan Securities LLC.

Other Positives

The enhanced capital deployment reflects Micron’s strong balance sheet as well asits 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 anticipated 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.

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 overall results. We anticipate these benefits to be a tailwind for the company, going forward.

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

Zacks Rank & Key Picks

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

Some other top-ranked stocks worth considering in the technology sector are NVIDIA Corporation (NVDA - Free Report) and Applied Materials, Inc. (AMAT - Free Report) , 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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