Citigroup analyst: Micron Tech convertible interesting for aggressive hedgers

Nashville, March 31 - Micron Technology Inc.'s 2.5% convertible due 2010 is an interesting idea for aggressive hedge accounts, said Citigroup Global Markets Inc. convertible analyst Lynne Hambright in a bulletin Wednesday.

"The bond metric profile, the company's credit along with the operating leverage inherent in the Micron business model, coupled with positive data points of stable and rising prices, and, in our opinion, the cost side under control, make for an interesting idea," Hambright said.

The convertible "offers opportunity for aggressive hedge accounts who can widen the filter when they gamma trade and look to trade around events such as the traditional earnings season or company specific [events] like the renewal of contract pricing," she said.

"We suspect the opportunity for gaps in the common, but suggest it is over time. We suspect a wider filter is appropriate because of strong, and improving, credit and because of the operating leverage inherent in the Micron business model."

Gamma is 0.4610 on the bond.

With the underlying stock at $16.33, the Micron Tech convertible was at 152.

Those price levels put the point premium on the convert at 13.19. Volatility is 47%. Delta is 84.5%.

From a pure derivatives standpoint, Hambright said the bond appears fairly valued, and she acknowledged that the passage of time and possible lower volatility pose challenges.

The bond is callable in February 2006.

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