Quick Update On Micron's Debt Reduction Progress

Shares of Micron Technology, Inc. (NASDAQ: MU) were trading lower by 3 percent early Wednesday morning in reaction to the company's new share offering in which it will sell around $1 billion in stock. Following the announcement, Stifel's Kevin Cassidy maintains a Buy rating on Micron's stock with an unchanged $64 price target, as the share offering aligns with the company's objectives.

Micron will use $476 million of the proceeds to redeem a $438 million of its 7.5 percent secured notes that are due in 2023, along with accrued and unpaid interest, Cassidy commented in a research report. The rest of the cash will redeem other debt securities and for general corporate purposes.

By reducing its debt, the company will accelerate its leverage reduction plan. This gives better flexibility to pay convertible options and premiums with cash, the analyst added. It also gives management greater flexibility to manage its U.S. cash balance. In fact, around 50 percent of the company's total cash balance is sitting abroad, and 90 percent of its fiscal 2017 cash was similarly generated abroad.

As a whole, Micron's new stock offering will accelerate the company's outlook of being net cash positive at the end of fiscal 2018. In addition, the stock offering will also save around 5 cents per share in converts over its prior debt plan.

"While many investors may be suspect on the timing of this offering (considering the low P/E and near +5 year high share price), we see management as being prudent in reducing convertible debt and building on-shore cash," the analyst concluded.

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