By Cody Miecnikowski
Micron Technology, Inc. (NASDAQ:MU) shares have drifted down since January after an incredible two-year run. The company’s most recent earnings report on June 24 sent shares diving down even deeper, marking a 45% loss year-to-date. Despite unattractive stock trends, Tsinghua Unigroup Ltd., a state-owned chip-design outfit based in China, is preparing to bid $23 billion, or $21 a share, to acquire Micron.
The proposal comes as a time when the Chinese government is aiming to build more domestic sources of semiconductors. The country is considerably weak in memory chip production and has yet to develop any key technology needed for the data-storing components. President of International Business Strategies consulting group, Handel Jones, commented, “[China has] decided that they really have to buy somebody because they can’t deliver the intellectual property themselves.”
In a hungry effort to acquire Micron, the Chinese chip designer is intending to bid a 19.3% premium over the company’s June 13 closing price of $17.61. However, some analysts argue that the premium isn’t enough. Shares of Micron have fallen largely due to weak personal-computer sales, but analysts argue the stock will turn around.
Nevertheless, various investors believe the deal is somewhat of a political stunt that may not go through. Industry insiders believe Tsinghua Unigroup’s biggest hurdle in securing the deal with Micron could be a review by U.S. regulators. One concern is that the U.S. would no longer have significant production of a key component in personal computers and other gadgets like smartphones. Another concern is that CFIUS, a group charged with determining whether any foreign acquisitions or investments pose a security threat, could potentially block this transaction.
Even so, analysts appear to be bullish on the stock’s future direction.
On July 14, Jefferies analyst Sundeep Bajikar reiterated a Buy rating on Micron with a $36 price target, pointing out that the company is currently trading below fair value.
The analyst comments that many manufacturers are eager to acquire the dynamic random access memory chip known as DRAM. He believes that the bid is consistent with his thesis and adds, “DRAM and 3D NAND manufacturing technologies are strategic for China but difficult to access.” Bajikar continues, “Micron’s technology positions in DRAM and NAND (esp. 3D NAND) are likely to improve significantly over the next 12 to 18 months.”
Bajikar concludes, “panic selling and a short term investment focus have driven a sharp valuation discount that is ignoring a potential recovery in DRAM fundamentals.”
When measured over a one-year horizon and no benchmark, Sundeep Bajikar has an overall success rate of 63% recommending stocks, earning a +20.2% average return per recommendation.
Another analyst expressing bullish sentiments on Micron is Rajvindra Gill of Needham. On July 14, Gill reiterated a Buy rating on the stock with a $40 price target.
Gill believes that “the offer price does not reflect MU’s fair value” and that “the company would be unlikely to entertain any offer below $35 per share.” He also shares his thoughts that regulatory issues exist “given that it would be the largest takeover of a U.S. firm by a Chinese entity.”
He goes on to say that a “MU-SNDK merger” is a much more plausible alternative than “an acquisition by a foreign entity.” Gill continues, “Tsinghua group’s reported offer is further evidence of China’s strong desire to build its own semiconductor ecosystem, a trend worth monitoring over the next several years.”
When measured over a one-year horizon and no benchmark, Rajvindra Gill has an overall success rate of 58% recommending stocks, earning a +18.2% average return per recommendation.
Out of 23 analysts polled by TipRanks, 17 analysts are bullish on Micron, 4 are neutral, and 2 are bearish. The average 12-month price target for Micron is $29.78, marking a 51.86% potential upside from where stock is currently trading. On average, the all-analyst consensus for Micron is a Moderate Buy.