MU – Base Case CDS 90bps, Base Case iCDS 28bps, Negative Case iCDS 53bps, 2027 4.185% Bond YTW of 3.984%, iYTW of 3.042%, Baa3 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Need
- Cash bond markets are overstating credit risk with a YTW of 3.984% relative to an Intrinsic YTW of 3.042%, while CDS markets are slightly overstating credit risk with a CDS of 90bps relative to an Intrinsic CDS of 28bps. Furthermore, Moody’s is materially overstating MU’s fundamental credit risk with its Baa3 credit rating five notches below Valens’ IG3+ (A1) 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™ analysis of the firm’s Q2 2022 (3/29) earnings call highlights that management is confident they successfully returned Xian site production back to normal output levels post-lockdown. Moreover, they are confident about the trajectory of profitability through Q4 and the strength of both DRAM and NAND markets.