Which matters more: Micron Technology's (MU) downbeat comments on Thursday that select clients are making "inventory adjustments," or that the gigantic semiconductor maker is going to be aggressively buying back $10 billion worth of shares, or one fifth of the company?
In the short term, we know what is driving the selloff: The inventory adjustment issue, especially as it appears to concern not just flash, which everyone in the business knew was soft, but DRAMs, where there were plenty of analysts somehow hoping against hope that they wouldn't hear anything negative.
What were they smoking? Pass me a Tilray (TLRY) .
When a stock is selling for less than 4x next year's earnings estimates when the rest of the market sells for about 20x, you have to believe that not all is perfect going into the quarter. Did these sellers actually expect Micron to raise numbers, for heaven's sakes? And were they really surprised to hear that gross margins are going to decline 300 basis points next quarter?
Given the low price-to-earnings multiple, I actually expected much more degradation. Were they shocked that there was an impact from tariffs, when you consider that Micron has had well-known, major intellectual-theft problems with its joint-venture manufacturing partner in China? Were they stunned that the well-telegraphed CPU shortage brought on by problems at Intel (INTC) wouldn't hurt the company even as it's an open secret that Intel's issues are slowing down the whole industry?
Of course, there are plenty of people who bought this stock on the heels of David Tepper telling CNBC that he is "very very long" Micron. You should blame yourself if you did that. Tepper has no duty to you. For all we know, he sold it Wednesday into the quarter run-up.
But does this mean that the stock of Micron is, once again, finished and doomed for one of its periodic crashes? I'm not so sure this time, because unlike the other instances, Micron now has a buyback to beat the band -- and it's about to kick in.As CEO Sanjay Mehrotra said on the call: "We certainly view our stock as being undervalued at current prices and are aggressively implementing our stock buyback program. We will continue to maintain a healthy balance sheet and use strong free cash flow to support our $10 billion buyback and assess opportunities to accelerate the timeline for its completion."
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To me, that could offset comments he made about what could turn out to be a shorter-lived downturn, because of how little capacity is really coming on versus what you would expect in olden days. Now I know there were groans among the analysts when Mehrota said in response to the dreaded inventory adjustment -- code for customers were double ordering because they were worried about not getting DRAMs and now they have too many -- "You know, in one or two quarters here or there, there can certainly ebb and flow in terms of demand or supply in the industry." Micron has a history of having unfaithful shareholders who don't want to hear about any weakness lest it mean here comes the bust after the boom.
But after this already-brutal decline from $62 to $42, the buyback could make a big difference. I say that because consider how other semi buybacks have had an impact.
Consider how much everyone hated Qualcomm (QCOM) -- and then it announced a $30 billion buyback. It's now up from $50 to $74; never looked back. NXP Semi (NXPI) has found a bottom, after the disastrous failure of the Qualcomm bid, ever since announcing a $5 billion buyback. You have to like how Broadcom (AVGO) has worked higher ever since it started its $12 billion buyback. And last night's $12 billion buyback announced by Texas Instruments (TXN) is going to propel that stock higher on Friday.
In other words, before you sell Micron's shares, remember that one out of five of your shares might be bought by MU. I don't' want any company buying back stock I am selling after a big decline. Before it? I get that. But after? Hmmm.
Very few people are going to want to buy a stock where the earnings will be down next year -- and that's the way it is looking for Micron. So I expect selling. But I think that we could look back and wonder whether, unlike all of the other times, Micron didn't let the stock fall because its balance sheet is good, and its excess cash is bountiful. And if demand accelerates for its products, then it might very well be an investible growth stock, and not just some soar and crash story, like the Micron in days of yore.