Thursday, August 25, 2016

Micron (MU) bond

I was going to buy this bond last week and time got away from me.  That happens when you are retired.   I decided to write up why I liked this bond although I am not going to buy today.

As a stock Micron, symbol MU, is not on my radar. It doesn't pay a dividend and the P/E is higher than I like.  Earnings are quite a roller coaster.  Nasdaq shows an 11 year earnings history where 2008 and 2009 earnings were negative.  2010 earnings staged a bounce back.  2012 was weak and 2013 shows another return to positive earnings.  This year earnings are weak but not disastrous.

5.5% Senior Unsecured Note due 2/1/2025

This bond is rated BB.  Coupon on this bond is 5.5% and it trades at a discount.  The time to buy it was in April when it traded around $75.25 per bond with a yield to maturity of 9.584%.   I was tempted last week when the bond traded around $96 for a yield to maturity of 6.1%.  Today it is trading closer to $97 putting the yield below 6%.

Balance Sheet Consideration

This bond, CUSIP # 595112BC6 is available through Schwab and you can check the bond trade activity at the Finra site shows the quarterly debt to equity ratio (D/E ratio) at .6948 and MSN shows the D/E ratio at .73.  These ratios are quite adequate.  While industry standard is a bit lower, any D/E less than 1 is acceptable.

Interest coverage ratio is 1.6.  I always look for an interest coverage ratio greater than 1.  Market watch pegs free cash flow at 1.19 billion, so MU should be able to service this debt.

Should I buy it?

I provided an 11 year look into their earnings.  This bond is just over nine years, will Micron be around in 9.5 years.  My answer is probably and at a yield of 9% it was very worth a buy.  However, at $97 and a yield under 6%, this bond is not worth the risk for me.  Should the value of the bond continue to increase as it has over the past 4 months, I could sell it at a profit, but that scenario is not guaranteed.

I am writing about this bond, because a reader with a longer time frame may find it valuable.  Hard to find any bonds of interest and this one is definitely of interest.

M* MoneyMadam