MU - Valens Credit Report - 2022 08 03
Credit markets are overstating credit risk, with a cash bond YTW of 4.524% and a CDS of 123bps relative to an Intrinsic YTW of 3.306% and an Intrinsic CDS of 41bps. Furthermore, Moody's is also overstating MU's fundamental credit risk with its Baa3 credit rating two notches below Valens' IG4+ (Baa1) credit rating.Incentives Dictate Behavior™ analysis highlights mostly favorable signals for credit holders. Management's compensation framework should drive them to focus on all three value drivers; asset efficiency, margin expansion, and revenue growth, which should lead to Uniform ROA improvement and increased cash flows available for servicing obligations. Additionally, management members are material owners of MU equity relative to their annual compensation, indicating they may be well-aligned with shareholders for long-term value creation.
Earnings Call Forensics™ of the firm's Q3 2022 earnings call (6/30) highlights that management is confident they have outpaced the industry in cost reduction this year, that they will have a disciplined approach to operating expense reduction, and that networking and graphics segments tend to have more margin stability throughout a cycle.
Micron Technology provides memory and storage solutions. The company's portfolio of memory and storage technologies include Dynamic Random Access Memory, Not And, 3D XPoint? memory, and Not Or. The company's segments are: Compute and Networking Business, which includes memory products sold into client, cloud server, enterprise, graphics, and networking markets; Mobile Business, which includes memory products sold into smartphone and other mobile-device markets; Storage Business, which includes Solid-State Drives and component-level solutions sold into enterprise and cloud, client, and consumer storage markets; and Embedded Business, which includes memory and storage products.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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