Canaccord analysts weigh in with mixed takes after stock giants Advanced Micro Devices, Inc. (NASDAQ:AMD) and Paypal Holdings Inc (NASDAQ:PYPL) released third-quarter earnings. Whereas one analyst is bullish on AMD’s prospects approaching 2017, another is cautious on PYPL considering under-investing and offline risks. Let’s take a closer look:
Advanced Micro Devices, Inc.
Advanced Micro Devices shares are dipping 6% today after yesterday’s third-quarter earnings release indicates that despite a revenue beat, thanks to record semi-custom sales and the company’s Polaris GPU launch, there was some weakness in terms of PC sales as the company is not launching its new Zen products until the first half of 2017.
However, Canaccord analyst Matt Ramsay remains bullish and recommends to “Buy the weakness,” reiterating a Buy rating on shares of AMD with an $8.50 price target, which represents just under a 29% increase from where the stock is currently trading.
AMD posted third-quarter revenue of $1.30 billion, which Ramsay notes is “well above” his projection of $1.22 billion, notably a 27% quarterly and 23% yearly surge on back of a boost in sales of Semi-Custom SoCs and Polaris GPUs. Meanwhile, AMD’s gross margin for the quarter was 30.5%. Though operating expense levels reached ahead of guidance, non-GAAP EPS of $0.03 still managed to top Ramsay’s estimate of $0.01 and consensus of $0.00.
However, the analyst underscores the AMD management team’s guidance for fourth-quarter was “seasonally weaker,” denoting an 18% decline in quarter-over-quarter, but fell “inline with consensus.” Non-GAAP gross margin guided to 32%, which corresponds with the analyst’s expectation.
Ramsay believes, “While Q4/16 guidance appears conservative and slightly disappointing versus the very strong Q3/16, we remind investors this quarter is still very much a transition quarter ahead of several new Zen-based product launches in 2017,” adding that the Zen CPU products, new Vega GPUs and new semi-custom gaming wins are “all still on track” for the coming year.
Moreover, the analyst opines, “In addition, several material upside call options remain for the AMD story that given a relatively fixed operating and now lower interest/tax cost basis could move gross margin and non-GAAP EPS materially higher. While we recognize that roadmap execution, competition and financial risks remain, we believe risk/reward remains tilted toward the upside entering an important 2017 for the company’s turnaround.”
“Overall, with several catalysts still to come in 2017 and beyond, our BUY thesis remains very much intact and the after-hours selloff seems unwarranted and very short-term focused,” Ramsay contends.
According to TipRanks, which measures analysts’ and bloggers’ success rate, five-star analyst Matt Ramsay is ranked #202 out of 4,183 analysts. Ramsay has a 59% success rate and realizes 9.7% in his annual returns. When recommending AMD, Ramsay yields 6.8% in average profits on the stock.
TipRanks analytics demonstrate AMD as a Hold. Based on 18 analysts polled in the last 3 months, 5 rate a Buy on AMD, 10 maintain a Hold, while 3 issue a Sell. The 12-month price target stands at $6.38, marking a nearly 2% downside from where the shares last closed.
Paypal Holdings Inc
Paypal shares are climbing close to 8% today after delivering a “mostly solid” third-quarter print. Nonetheless, Canaccord analyst Michael Graham remains sidelined on the online payment giant and reiterates a Hold rating on PYPL with a price target of $40, which represents just under an 8% downside from where the shares last closed.
Additionally, while the analyst maintains his 2016 EPS projection at $1.48, but slightly raises his 2017 EPS projection from $1.69 to $1.70. The giant yielded $2,667 million in net revenue, topping both the analyst’s expectation of $2,663 million and consensus of $2,650 million. Non-GAAP operating income of $490.0 million falls below Graham’s expectation of $541.5 million. EPS for the quarter of $0.35 mirrors both the analyst’s and the Street’s expectations.
Management guided net revenue for the fourth quarter to a range of $2,920 to $2,990, compared to Graham’s estimate of $2,963, and guides non-GAAP EPS to a range of $0.40 to $0.42, compared to Graham’s estimate of $0.40.
Graham affirms, “Engagement improvements were visible across the product portfolio, including Venmo, Xoom, and core PayPal, consistent with our positive view on TPV. Customer choice is seeing positive engagement signals already but is expected to add incremental costs near-term. Beyond the V/MA deals, PayPal expects more issuer partnerships to be enabled.”
“However, management acknowledged the cost trade-off in such deals and noted cuts in other areas of spending to maintain margins, which we believe could potentially lead to a risk of under-investing in key growth areas. Our thesis in a brief form remains that PayPal has a strong position in the online world but a weaker one on the offline world, and in our judgement the stock reflects this,” Graham concludes.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Michael Graham is ranked #125 out of 4,180 analysts. Graham has a 58% success rate and earns 12.1% in his yearly returns. When recommending PYPL, Graham gains 10.2% in average profits on the stock.
TipRanks analytics indicate PYPL as a Buy. Based on 29 analysts polled in the last 3 months, 19 rate a Buy on PYPL, 8 maintain a Hold, while 2 issue a Sell. The consensus price target stands at $45.88, marking a nearly 7% upside from where the stock is currently trading.