Micron Buyback May Not Be Enough to Move the Needle

Micron Technology Inc. (NASDAQ: MU) has been an incredible ride. First it was for turnaround investors, and then it was for growth investors again. Unfortunately, now the semiconductor giant is more and more representative of a value stock — a transition that often comes with unusual moves that prior investors generally want to avoid.

To prove that Micron has entered the “value investor” stage, Micron’s board of directors has authorized the discretionary repurchase of up to $1 billion of the company’s common stock. There is nothing wrong with a buyback strategy in general, but this only confirms our value stage thesis even further.

Micron signaled that any share repurchases under the new authorization can be made in open market purchases, block trades, privately negotiated transactions and/or derivative transactions, subject to market conditions and Micron’s ongoing determination that it is the best use of available cash. Micron expects to use cash on hand to fund any repurchases, so it means that Micron doesn’t have to borrow funds to accomplish its buybacks. As you often see with many buyback announcements, the act of authorizing a share buyback does not obligate the company to actually acquire any common stock.

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It usually takes the word “billion” for it to matter in a stock buyback, but we wanted to see what the $1 billion really means here. Micron’s market cap is almost $34 billion. The $31.06 closing price of Friday would imply that Micron could repurchase almost 32.2 million shares on a static basis, if carried out immediately. With average daily volume of 26.8 million shares, this is only about 1.2 days worth of trading volume. The most recent short interest in semiconductors showed that Micron’s had roughly 104 million shares short, and that was closer to 2.6 days to cover at the time, when volume was higher. It also represents about 3% of the total market cap.

The good news is that this is not exactly bad news at all. Shares were up 25 at $31.70 after the announcement. That being said, this likely will not be one of those buybacks that makes investors treat the shares much differently.

Chief Financial Officer and Vice President of Finance Ron Foster said:

Our business continues to generate strong operating cash flows, enabling us to invest in our strategic growth initiatives while also returning capital to investors. In the first fiscal quarter of 2015, we spent approximately $389 million to eliminate our 2031B convertible senior notes and their associated share dilution. This share repurchase authorization represents an additional avenue to return excess capital to investors and enhance long-term shareholder value.

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Micron’s 52-week trading range is $16.30 to $34.85.

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