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After Micron, David Einhorn Targets This Small Company

David Einhorn (Trades, Portfolio)’s Greenlight Capital (GLRE) has recently released a preliminary proposal in which the business could acquire a small ethanol company called BioFuel Energy (BIOF). As a result, BioFuel’s shares have soared in after hours trading, showing an increase of more than 50%. Before this, David Einhorn (Trades, Portfolio) added Micron Technology (MU) to his portfolio. The DRAM maker will likely release its quarterly results on Thursday in which the company could post significant improvements in its revenues and income.

Greenlight Capital has proposed to purchase the biofuel developer through a $275 million transaction, which involves cash and equity. In a letter addressed to BioFuel’s board, David Einhorn (Trades, Portfolio) and Jim Brickman of JBGL Funds said, “We believe that this proposal provides an opportunity for the Company and its stockholders to acquire an interest in a business with long term equity potential and an attractive portfolio of assets”

Greenlight Capital has also revealed that it has increased its stake in BioFuel from 26.2% in December to 35.5%.

BioFuel was formed back in 2005 and operated two corn ethanol facilities in Wood River, Nebraska and Fairmont, Minnesota. Each of the two plants had annual undenatured nameplate production capacity of approximately 110 million gallons.

The company, however, couldn’t take off and failed to make a payment to its lenders on September, 2012. Consequently, BioFuel received a notice of default. By November 2013, BioFuel entered into an agreement with its lenders to sell its ethanol plants and the working capital to Green Plains Renewable Energy (GPRE). As per the company’s official filing, by the end of December 2013, BioFuel had no long term debt.

BioFuel is a small part of David Einhorn (Trades, Portfolio)'s potfolio. David Einhorn (Trades, Portfolio)’s position in BioFuel Energy was just 0.03% of Greenlight’s U.S. long portfolio, as of Q4 2013.

Before BioFuel Energy, David Einhorn (Trades, Portfolio) revealed that his firm has purchased a significant stake in Micron, which is now 14.22% of the firm’s US long portfolio, just behind Apple (AAPL) that accounts for a little over 18% of his portfolio. On an average cost basis, Greenlight is believed to have made the purchase at $16.49 per share.

Micron’s shares have risen by 120% in the past 12 months and closed at $21.91 on Friday.

Micron has risen on the back of a favorable business environment, with strength in prices and lower costs. Micron’s quarterly results could be announced next week. The company does not give any quarterly guidance but analysts are expecting a 91% year-over-year increase in revenues to $3.98 billion while the company could swing to a profit of $0.74 per share from a loss of $0.28 per share in the same quarter last year.

For the full year, as per data compiled by Thomson Reuters, Micron could report a 76.4% increase in revenues to $16 billion which could translate into earnings of $2.95 per share, showing a significant improvement from a loss of $0.18 per share last year.

Micron could continue growing on the back of a 12% expected growth in the DRAM market in the current year. The company is the second biggest player in this $39.5 billion market, behind the electronics behemoth Samsung (SSNLF).

Moreover, the DRAM market has also benefitted from the growth in smartphones market. According to TechNavio, the mobile DRAM market could grow at CAGR of 10.4% through 2018. This could translate into significant growth opportunities for Micron. However, the negative price trends in the mobile DRAM market could pose a challenge.

About the author:

Sarfaraz A. Khan
Sarfaraz A. Khan is a capital market analyst and finance writer. His specialty lies in energy stocks. He also covers consumer goods, services sector, technology stocks, emerging markets and ETFs. His work appears on TheStreet, Seeking Alpha, Motley Fool and GuruFocus.

Visit Sarfaraz A. Khan's Website


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