Advanced Micro Devices (AMD) kept Wall Street’s expectations on the lower side while releasing its fiscal third-quarter results back in October. The company’s guidance had called for revenue growth of just 8% during the quarter ending in December, a far cry from what investors have gotten used to in recent quarters. AMD blames weak GPU sales to the cryptocurrency market for this slowdown. However, the chip giant will have the opportunity to reverse course when it releases fourth-quarter results after the market closes on Tuesday, January 29. Or not.
While conservative guidance may allow AMD to meet 4Q18 estimates, Susquehanna analyst Christopher Rolland believes 1Q19 estimates are still at risk. As a result, Rolland reiterates a Neutral rating on the stock, while lowering the price target to $18 (from $19), which implies a downside of 11% from current levels. (To watch Rolland’s track record, click here)
Rolland opined, “While AMD has managed 1Q19 Street expectations down from +6% QOQ to +3% QOQ, typical seasonality suggests a high-single-digit decline in the first quarter of the year. Additionally, we note evidence of continuing retail price declines, suggesting their graphics card channel has yet to clear, an additional risk. Overall, the company is unarguably becoming more competitive with Intel and should garner continued PC/server gains throughout 2019 (and beyond). But… it is difficult for us to assess the “starting point” or true size of their core business (ex-crypto). To provide visibility into this very important issue, we strongly encourage AMD’s management to disclose both CPU and GPU revenue.”
“AMD options appear to be pricing in around a low-double-digit move for the company’s upcoming report, essentially in-line with the +/- 13.6% move seen on average following the company’s last eight reports. Recall that in the November 19 Derivatives Daily report, we recommended a protective risk reversal for holders looking to hedge positions into the report (specifically, we looked at the regular February expiration 17p/26c risk reversal). With the report date now approaching, and alongside this morning’s preview, we refresh that idea and recommend a purchase of the February 1 weekly expiration 18p/22c risk reversal (selling the 22 call to help finance a purchase of the 18 put) for holders looking to protect and willing to cap upside,” the analyst added.
Wall Street is not convinced just yet on the chip giant, but cautious optimism is circling, as TipRanks analytics demonstrate AMD as a Buy. Based on 24 analysts polled in the last 3 months, 12 rate a Buy on AMD stock, 11 maintain a Hold, while only 1 issue a Sell. The 12-month average price target stands at $25.64, marking a 28% upside from where the stock is currently trading. (See AMD’s price targets and analyst ratings on TipRanks)