MU – Base Case CDS 150bps, Base Case iCDS 50bps, Negative Case iCDS 136bps, 2027 4.185% Bond YTW of 5.265%, iYTW of 4.156%, Baa3 Rating from Moody’s, XO (equivalent to Baa3) Rating from Valens, Low Refinancing Need
January 13, 2023
- Credit markets are overstating credit risk, with a cash bond YTW of 5.265% and a CDS of 150bps relative to an Intrinsic YTW of 4.156% and an Intrinsic CDS of 50bps. Meanwhile, Moody’s is accurately stating MU’s fundamental credit risk with its Baa3 credit rating in line with Valens’ XO (Baa3) credit rating.
- Incentives Dictate Behavior™ analysis highlights mixed signals for credit holders. MU’s metrics should drive management to focus primarily on margin expansion and revenue growth, which could lead to Uniform ROA improvement. Meanwhile, most management members are material owners of MU equity relative to their annual compensation, indicating they should be well-aligned with shareholders for long-term value creation.
- Earnings Call Forensics™ of MUR’s Q3 2022 call highlights that management sentiment was negative when talking about macro headwinds, inventory build-up, and their profitability. Additionally, management may be concerned about their limited exposure to automotive market tailwinds and the negative macroeconomic outlook for enterprise demand in the next year. Moreover, they may be overstating the potential for the PC market to show stabilization going forward. Furthermore, management may be concerned about the demand impact of customer inventory buildup as a response to shortages in the semiconductor industry, their elevated inventory days levels, and sustained high capex in the business
