Micron May Buy Back $10B in Stock: Nomura

Micron Technology Inc. (MU), the memory chip maker, could be gearing up to buy back as much as $10 billion in company stock if Nomura Instinet’s call proves true.

Prompted by the Boise, Idaho chip maker’s move this week to open a $2 billion credit line, Nomura analyst Romit Shah said the credit line could go to repurchasing shares over the next four quarters. (See more: Why Micron’s Stock May Rebound 10%.)

Big Buyback In The Cards?

In a research note covered by TheStreet.com Shah pointed to Micron’s May analyst meeting in which the company said it was targeting liquidity in the range of 30% of sales. With a $2 billion credit line and around $8 billion in cash, its liquidity will be at 33% of revenue or $10 billion by the end of August. “This, to us, strongly suggests that every dollar of free cash flow could be used to repurchase the stock,” wrote the analyst, noting that management at Micron has repeatedly said the stock is “cheap” at current levels. The analyst said that if earnings don’t grow from August Micron could buy back $10 billion of stock during the next four quarters. That, said Shah, would boost earnings per share by $1.50 year-over-year and mean that Wall Street estimates may be too low. “We think this means that consensus is either not factoring in the buyback or contemplating a 10%-15% decline in profit next year, which appeals overly conservative in our estimation,” wrote the analyst in the note. (See also: Micron Has ‘Storm Clouds on the Horizon’: MS.)

Shares of Micron finished the trading session Monday down 0.35% or $0.20 to $56.15. So far this year shares are up more than 30%. Nomura has a $100 price target on Micron, implying it can gain an additional 78% and rates it at a buy.

China Ban Not Expected To Hurt Too Much

Earlier in the month Micron’s stock was under pressure after China banned the manufacturing and selling of some Micron products. The ban is the result of a dispute between Micron and Taiwan’s United Microelectronics (UMC)  and Jinhua. United Microelectronics and Jinhua sought the blockage, contending Micron violated patents in China. “Micron is disappointed with the ruling by the Fuzhou Intermediate People’s Court. We strongly believe that the patents are invalid and that Micron’s products do not infringe the patents. The Fuzhou Court issued this preliminary ruling before allowing Micron an opportunity to present its defense,” Joel Poppen, Micron senior VP of legal affairs and general counsel said earlier in July. The memory chip maker said it wasn’t provided a fair hearing and that it will “work aggressively” to defend against these “unfounded patent infringement claims.” It’s only expected to hurt its current fiscal fourth-quarter revenue by about 1%.

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