Technology

Even More Analysts Chasing AMD Higher After Financing

Jon C. Ogg

Published: September 25, 2016 10:25 am

Last Updated: January 13, 2020 3:11 am

Advanced Micro Devices Inc. (NASDAQ: AMD) may have received a lot of new cash from a capital raise and recently reworked its wafer supply agreement, and now analysts have started getting back on the AMD wagon after a sharp pullback. Oddly enough, rival Intel Corp. (NASDAQ: INTC) may be a driving force for AMD, even on top of AMD’s other ongoing long-term positives.

Before chasing analyst calls unilaterally, it is important to understand that AMD’s recent trading was after a monumental run of more than 300%. Then came AMD’s dilutive financing via stock and convertible debt sales. It is also important to understand that many analysts get their upside theses wrong, and sometimes they just ride a bull for long enough that they forgot about the horns.

AMD has a 52-week trading range of $1.65 to $8.00. Its consensus analyst price target is now $6.12, according to Thomson Reuters. That consensus target was $6.01 a week ago, $5.25 a month ago, $5.19 two months ago and $3.95 at the end of June. Here are some of the recent positive AMD analyst calls, tempered with some cautious calls so investors get both sides of the coin.

AMD saw a key Sell-equivalent rating removed by Bernstein on September 20. The firm raised AMD to Market Perform from Underperform and raised its target price to $5 from $3. AMD shares were last seen flat at $6.16 ahead of that call.

The prior day brought a big call from the likes of Jefferies, which reiterated a Buy rating and a whopping $9 price target. Jefferies reflected upon AMD’s recent debt and equity financing, noting multiple catalysts ahead and that the Street has not fully caught on here.

Even before Intel raised its guidance, MKM Partners reiterated its Buy rating and $8 price target on AMD on September 7. This was after the revised wafer supply deal with GlobalFoundries and was after the financing of debt and stock was at least known. MKM Partners said:

The launch of margin-rich Zen server solutions should close the architecture gap with Intel (INTC, Buy, $36.08, $40 PT), and help stabilize and then increase their share of the x86 server market. We maintain our Buy rating and $8 price target (implies 1.76x multiple to our EV/FY17 Sales estimate).

On September 11, Canaccord Genuity reiterated its Buy rating and its $8.50 price target. It also acknowledged Intel’s threat, but its thesis said:

While we recognize that roadmap execution, competition and financial risks remain, we remain impressed with the new management team and still anticipate a quick recovery to solid profitability given prospects for topline growth given a much stronger product roadmap and due to lower expense levels necessitated by the company’s recent struggles. Finally, we believe risk/reward for AMD shares remains unbalanced to the upside despite the recent stock move and could quickly recover from recent volatility. We reiterate our BUY rating and $8.50 price target and would be buyers of any stock weakness following the announcement of these strategically important long-term moves.

More recently, Standard & Poor’s equity team reiterated their Hold rating and $6 price target. Their September 17 note said:

Our 12-month target price of $6.00 is based on a price-to-sales ratio of 1.1X our 2017 sales per share estimate, a steep discount to peers, but near its ten-year historical average. A discount to peers is warranted, we think, given its lack of profitability.

Also on September 13, Deutsche Bank remained cautious. The firm has a Hold rating and a $5 price target. The cautious view said:

AMD benefits from interest savings and pushes out the maturity of the next tranche of debt to 2022; however, it also dilutes its current shareholders by as much as ~30% between the new equity/convertible and the recently-issued warrants to Mubadala. Overall, while we applaud AMD’s recent execution on products, IP and profitability, we believe the core challenges of the company remain.

Merrill Lynch remains among the most cautious and negative on AMD. Its team has an Underperform rating on AMD (and a Buy rating on Intel and NVIDIA). Their price target is $5, but even that target was raised in the recent months.

Even the more cautious analysts have recently raised AMD target prices. Now just keep in mind that AMD shares are up 128% year to date and up 280% from this time a year ago. That is not normal, even for AMD. A gain like that also means that much of AMD’s coming good news is already at least partly baked into the cake here. Thomson Reuters does not have AMD expected to be profitable on an earnings per share (reported, not GAAP) until 2018.