High Expectations in Line for AMD Earnings and 2020 Outlook

Technology

Published: January 28, 2020 10:25 am

Last Updated: January 28, 2020 10:26 am

The week of January 31 will be the peak of earnings season, with almost half of the Dow Jones industrials and all the major technology stocks set to report earnings. Among them is Advanced Micro Devices Inc. (NASDAQ: AMD) with a report that is due after the bell on Tuesday. With close to a 150% gain in 2019, and with a year-to-date gain of about 8% as of Tuesday morning, it’s an understatement to say that expectations will demand nothing short of a stellar report on earnings and 2020 outlook.

AMD has managed to shed its past woes, it is winning more share in the processor market and the company is doing well in graphics with game consoles ahead of this year’s console refreshes from Xbox and PlayStation. AMD shares recently hit a new all-time high of $52.81, and that has surpassed its prior zeniths of 2000 and 2005 when the shares challenged the $40 level. It seems almost impossible to believe that AMD was a mere $2 stock in 2015.

AMD’s consensus target price heading into earnings was $43.33. While that is under the current share price by more than $6, it is higher than the Refinitiv consensus target of $41.60 just a week earlier and is better than the $37.77 consensus target price on the last day of 2019.

AMD has consensus estimates of $0.31 in earnings per share (EPS) and revenue of $2.11 billion for the fourth quarter of 2019. That would be up from $0.08 EPS and $1.42 billion in revenues in the fourth quarter of 2018. It is unclear how far out AMD will offer guidance, but the consensus estimates ahead are as follows:

Q1/2020 $0.20 EPS (vs $0.06 EPS a year earlier) and $1.86 billion in revenues (up 46% from a year earlier).

FY/2020 $1.13 EPS (up from a projected $0.62 EPS for 2019) and revenues of $8.59 billion (up 28% from expected 2019).

Multiple analysts have made calls heading into earnings and the expectations remain firm.

Matt Bryson of Wedbush Securities issued a note with an Outperform rating but the same $51.50 target price until forward guidance is offered. A portion of his upside commentary:

We continue to believe AMD is a structural winner that is positioned to benefit from market share gains through 2021, if not beyond. As such we continue to view the stock as an OUTPERFORM. We however, are leaving our $51.50 target in place until we get an update around numbers, particularly in light of the recent certainty around the impact of the Wuhan coronavirus on technology supply/demand. We anticipate AMD realized greater than anticipated results in PCs tied to both 1) a strong end demand environment and 2) INTC product constraints that likely benefited AMD share. AMD’s PC business also should have benefited from normalization of inventory (sell-in) as the company finally appeared to resolve the shortages that had weighed on the high end of its desktop line.

Merrill Lynch’s Vivek Arya has a Buy rating and a $56 price objective on AMD, and that was issued ahead of the earnings call. His earnings preview focused on its share in servers, gross margin improvements an expected launch of its Zen 3 in 2020 and keeping longer-term annual guidance at the vest until AMD’s March 5 analyst day.

Other recent analyst calls:

On January 27, Susquehanna maintained its Neutral rating but raised its target price to $50 from $45.
On January 21, Cowen reiterated it as Outperform and raised its target to $60 from $47, noting that AMD was taking market share and was better positioned against Intel for more gains.
Mizuho upgraded it to Buy from Neutral and raised its price target to $55 from $38 on January 9.
Wells Fargo reiterated an Overweight rating and raised its price target to $55 from $48 on January 7.
Nomura reiterated a Buy rating and raised its price target from $40 to $58 on January 2.
Rosenblatt reiterated a Buy rating and raised its target to $65 from $52 on AMD on December 31.
RBC Capital Markets reiterated it as Outperform and raised its target to $53 from $50 on December 24.

Needless to say, AMD must deliver solidly on all fronts for some value-oriented investors not to bulk at its premium valuation of about 44 times expected 2020 earnings per share.

AMD was trading up almost 1% at $49.70 on Tuesday ahead of the key earnings report. Its market cap is now $58 billion, and its 52-week trading range is $19.05 to $52.81.