Whether a secondary offering of shares from a publicly traded company is a good thing or a bad thing is often a matter of perspective. In the case of Micron Technology, Inc. (NASDAQ:MU) though, its recently announced fund-raising sale of new shares is mostly being treated as a bullish development rather than a transaction that just divvies up its success among more shareholders.
The initial response to the MU stock news was concern. To be fair, with Micron stock sliding a tad lower as investors feared the adverse per-share impact.
With some time to think about it though, it didn’t take traders long to fall back in love with this maker of computer memory chips.
Traders made the right collective call.
The Latest MU Stock News: Secondary Offering Underway
Though whispers of a stock issuance have been floating in the market’s ether for a while, the company confirmed it earlier this week, announcing it would sell $1 billion worth of new MU stock and use the proceeds primarily to pay down debt. Given the not-so-horrible response to the news though (the MU stock price barely even blipped before staging a recovery effort), Micron has since opted to seek a total of $1.2 billion. All told, $438 million of the company’s debt with a hefty interest rate of 7.5% is going to be paid off. The rest of the proceeds will be put into the general fund for the company to use when and how it sees fit.
There are two sides to every coin, of course, and there’s no such thing as a free lunch on Wall Street. Credit Suisse analyst John Pitzer, for instance, notes that even the relatively small secondary offering will somewhat dilute the $8.00 per-share profit for 2018 he’d been modeling.
Even the analysts are mixed as to the potential upside and downside of the new shares, however. KeyBanc Capital analyst Weston Twigg acknowledged the injection of more than 29 million shares of MU stock could shave 15 cents per share, give or take, off of its annual earnings. But eliminating a wide swath of the company’s expensive debt could add another 18 cents to 23 cents per share back to Micron’s annual bottom line. Wells Fargo’s David Wong also suspects the offering will ultimately create a net benefit of five cents per share for the annual bottom line.
That said, even Pitzer wasn’t swayed enough to alter his “Outperform” rating for Micron. His MU stock price target of $50 was also unchanged in the wake of the news.
A Big Opportunity
While observers from both sides of the bullish/bearish spectrum will use the newly-offered MU stock news to bolster their particular case, the matter can be boiled down to its truth with one simple question. That is, can a company that’s collecting fresh investor funding do something productive with that cash that couldn’t be done otherwise?
For Micron, the answer is yes.
While the computer memory industry has been through a couple of notable boom-bust cycles, the bust that was supposed to take shape by now just hasn’t happened yet. DRAM memory chip prices have not only remained firm, they’re still on the rise well beyond expectations from just a few months ago. While NAND prices haven’t been quite as heroic, they’re projected to be no worse than flat for the foreseeable future, if they don’t edge slightly higher.