On the eve of Good Friday after the market had closed on Thursday, small cap chip stock Advanced Micro Devices, Inc (NYSE: AMD) did something unusual after its latest earnings report: It did not sink after its latest earnings reports. I should mention that we previously had an open position in Advanced Micro Devices in our SmallCap Network Elite Opportunity (SCN EO) portfolio from last summer up until late January when we locked in a small loss. We got out in part because while we believe in the company's potential over the long term, our SCN EO is a trading rather than a buy and hold portfolio plus AMD's shares sank yet again after the company reported earnings – a repeat of what happened after three previous earnings reports. However, the latest earnings report appears to have sent most of the bears (and many of the bashers who just hate this stock) into hibernation when you consider the following good news:
The AMD Earnings Report. On Thursday after the market closed, Advanced Micro Devices reported revenue of $1.40 billion for a 12% sequential decrease and a 28% year-over-year increase as sales at the company's solutions business (which supplies PCs) dropped 12% while the graphics and visual solutions unit's sales more than doubled to $734 million. In addition, AMD reported operating income of $49 million verses an operating loss of $98 million; non-GAAP operating income of $66 million verses an operating loss of $46 million; net loss of $20 million verses a net loss of $146 million; and a non-GAAP net income of $12 million verses a non-GAAP net loss of $94 million. Those results were better than analysts' expectations.
AMD an "Under the Radar" Transition Story. FBR Capital raised its price target on Advanced Micro Devices for to $6.00 from $5.50 and noted:
"We believe Advanced Micro Devices' 'under the radar' transition story is a key driver of value, although potentially messy. While structural PC headwinds are discouraging, we believe that AMD's non-PC segments will more than replace lost PC revenue over the next few years. Excluding another severe macro downturn, cash levels are now more than sufficient and net debt should be worked down for at least the next few years. In our view, the company has wisely directed its strategic focus away from the core PC market and toward gaming APUs, micro servers, and custom- embedded processors, areas its larger competitor is less focused on."
"Seeing Some Successes" in the Turnaround. Ascendiant Capital analyst Cody Acree was quoted in a Reuters article as saying:
"This is a company that's still in the midst of a very long-term turnaround but you're seeing some successes. None of this is a flip of a switch overnight. It's a plodding quarterly restructuring that really is going to change who AMD is."
Other Analysts Remain More Cautious. Not all analysts are excited about AMD's prospects as Nomura Equity Research's Romit Shah reiterated a Neutral rating along with a $4 price target and raised his 2014 estimates to $5.88 billion and 12 cents per share from a prior $5.67 billion and 6 cents per share. MKM Partners' Ian Ing also reiterated a Neutral rating and a $4.10 price target but he raised his 2014 estimates to $6.12 billion in revenue and 24 cents EPS from a prior $5.82 billion and 12 cents per share. Ing commented:
"We remain skeptical on ARM processors and micro-servers, and wary of potential PC share declines. Longer term AMD appears very much on track at building a sustained revenue stream of long-life designs (3-5 years or more) in adjacent computing areas. This could prove to be a better strategy than focusing on the highest volume PC and smartphone sockets with 9-12 month design cycles."
Bernstein Research's Stacy Rasgon reiterated an Underperform rating; but he raised his price target to $3 from $2.50 plus raised his 2014 estimate to $5.95 billion in revenue and 17 cents per share from a prior $5.72 billion and 6 cents per share. He also commented:
"We admit, we were wrong on the trajectory of AMD's revenue profile in Q2; and (at least for the moment) the collapse of PC revenues that we have seen in recent quarters stabilized a bit (with revenue declines about in-line with the market)."
Credit Suisse's John Pitzer reiterated an Underperform rating and a $3 price target, commenting:
"while we do recognize and commend that the Company is making progress, we will continue to stay on the sidelines until we have conviction relative to AMD's earnings upside potential… To be clear, AMD is making good progress in Computing Solutions segment with operating margins close to break-even at revenue levels that historically generated large losses – unfortunately, we see near-term profitability upside limited from current levels."
Pitzer raised his estimates for this year to $5.95 billion and 12 cent per share from a prior $5.66 billion and 8 cents per share.
Share Performance. On Tuesday, Advanced Micro Devices rose 4.37% to $4.30 (AMD has a 52 week trading range of $2.43 to $4.65 a share) for a market cap of $3.12 billion plus the stock is up 11.7% since the start of the year, up 74.1% over the past year and up 20.8% over the past five years. However, the following performance chart does show AMD's volatility:
Finally, here is a look at the latest technical chart for AMD:
Given the above news, it might be time for the AMD bears and bashers to find another stock to short (or bash….)
SmallCap Network Elite Opportunity (SCN EO) has an open position in AMD. To find out what other open positions SCN EO currently has, and to learn why so many traders and investors are relying on this premium subscription service, click here to find out more.
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