Technology analysts give their two cents on Advanced Micro Devices, Inc. (NASDAQ:AMD) and Verizon Communications Inc (NYSE:VZ) following Q1 earnings results from both. While a licensing deal and better than expected guidance causes one analyst to raise her estimates for AMD, she is unsure of the long-term potential these factors provide for the company. On the other hand, another analyst believes a slight earnings miss represents a compelling entry point for Verizon shares due to various initiatives.
Advanced Micro Devices, Inc.
Analyst Betsy Van Hees of Wedbush weighed in on AMD following the firm’s Q1 earnings late last week. Most notably, the company signed a licensing agreement for x86 CPUs with THATIC (Tianjin Haiguang Advanced Technology Investment Co., Ltd.) “to support the Chinese server market.” Half of the $239 million deal will be recognized in 2017, in addition to the receipt of royalty fees from the JV’s future product sales. The analyst believes this deal is a step in the right direction, and points to similar moves from competitors. She explains, “We are incrementally more positive on AMD as the counter seasonal print and guide to competitors Intel (INTC) and NVIDIA (NVDA) implies share gains and IP licensing revenue helps stem the losses.”
Van Hees highlights better than expected pro forma EPS and revenues for Q1 of ($0.12) and $832 million, respectively, compared to her estimates of ($0.13) and $818 million, respectively. She also points to revenue guidance for next quarter of $957 million compared to her estimates of $894 million. She explains, “The considerably better-then-expected guidance was driven by strong demand for chips to console market and GPUs.” While the next quarter looks bright for AMD, the analyst maintains her lukewarm view on the stock, stating “We don’t have the confidence yet given AMD’s past missteps that this near-term upside is sustainable.”
The analyst maintains her Neutral rating on the stock though raises her price target to $3.50 (from $2.00).
Betsy Von Hees has a 53% success rate recommending stocks with a 13.9% average return per recommendation.
According to TipRanks, out of all the analysts who have rated the stock in the past 3 months, 29% are bullish, 21% are bearish, and 50% remain on the sidelines. The average 12-month price target for the stock is $3.23, marking a 19% downside from where shares last closed.
Verizon Communications Inc.
Analyst David Dixon of FBR & Co. weighed in on Verizon following the firm’s Q1:16 results. Although the company “modestly missed…expectations”, posting revenues of $32.3 billion compared to the analyst’s estimates of $32.8 billion, wireless net ads came in at 463,000 compared to estimates of 364,000. Dixon adds, “Retail postpaid net adds of 640,000 and a consecutive quarter of 0.96% postpaid churn were driven by retention efforts and a consumer preference for network quality over price, in our view.” The analyst believes this slight revenue decline is due to “a greater shift to unsubsidized pricing” and the anticipation of the iPhone 7, set to release in September, when more customers are more likely to purchase a plan. Therefore, the slight Q1 miss “should not be viewed as a fundamental weakness in VZ’s business.”
The analyst also highlights management’s cost cutting initiatives including shutting down “unnecessary facilities”, reducing overhead costs, and optimizing support. He explains, “We see momentum building toward a low-cost distributed computing platform offering revenue-sharing opportunity with application service providers.” Furthermore, Dixon mentions the company’s investments in both network diversification and 5G, which “should boost capex in the balance of the year” in addition to its licensing deals which “could provide long-term pathways to 5G for Verizon in parallel with its strategic focus.” Despite new long-term opportunities, the analyst adjusts his FY16 revenue and EPS estimates to account for “recent slowing wireless upgrade trends, a faster mix shift towards unsubsidized plans, and the closing of wireline asset sales to Frontier.”
Dixon reiterates an Outperform rating on the company with a $54 price target, believing the recent pullback in shares represents a compelling entry point. He explains, “We believe VZ’s share weakness offers a buying opportunity to own a best-in-class defensive name, with an industry-leading network and the ability to leverage a lower-than-expected cost curve for aggressive investment in 4G and 5G densification to better position the company for mobile video and IoT.”
David Dixon has a 55% success rate recommending stocks with an average return of 12.7% per recommendation.
According to TipRanks, out of all the analysts who have rated VZ in the last 3 months, 37.5% are bullish while 62.5% remain on the sidelines. The average 12-month price target for the stock is $53.36, marking a 5% upside from where shares last closed.