MU – No Traded CDS, Base Case iCDS 27bps, Negative Case iCDS 44bps, 2027 4.185% Bond YTW of 2.737%, iYTW of 2.049%, Baa3 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Need

February 4, 2022

  • Cash bond markets are overstating credit risk with a YTW of 2.737% relative to an Intrinsic YTW of 1.879% and an Intrinsic CDS of 27bps. Meanwhile, 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 Q1 2022 (12/20) earnings call highlights that management is confident Compute and Networking business unit revenues were up 34% year-over-year

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