We are on the brink of seeing the fourth quarter earning results for two very interesting stocks namely: Advanced Micro Devices, Inc. (NASDAQ:AMD) and McDonald’s Corporation (NASDAQ:MCD). Ahead of the all-important print we delved into what we can expect from shares in the earnings-aftermath and beyond. As you will see, both these companies have enjoyed eventful quarters and are pushing through plenty of new products and initiatives in order to stay at the top of their game.
Advanced Micro Devices, Inc.
AMD will install and boot-up it’s fourth quarter earnings today after the bell. Investors are currently ‘teetering on the edge’ as the market waits to see whether the stock will beat or miss earnings estimates. Investors are no doubt feeling particularly nervous after a string of bearish market reactions to solid quarterly results. Now the market is expecting EPS of $0.05 on revenue of $1.4 billion.
If the company beats on specific metrics then- interestingly- we can use historic data from the last ten years to see how shares will react. For example, if AMD beats on revenue then in the past shares have increased by 3.4%. For EPS beats we can expect shares to react even more wildly with a rise of 6.7%, for margin beats 2.8%, and 0.2% for guidance beats. If AMD decides to raise guidance- usually more interesting than a simple guidance beat as it gives an upbeat picture of the coming quarter/year- then this could lead to a share increase of 5.5% as seen in the past. Another potentially volatile variable to consider is the 10%-14% profit-taking selling that can happen after even a positive earnings report.
At this point it is unlikely that AMD will decide to raise guidance- far more likely is that it will actually lower guidance. But at the same time, AMD is well setup to beat estimates for the fourth quarter specifically. As a result- before any profit-taking occurs- we can anticipate that shares could be trading at around $14 after the print. If AMD beat all estimates and raised guidance we could expect a big 18% upside swing. On the other hand, if the company results reveal estimate misses rather than beats we can expect shares to move by a similar percentage but in the opposite direction.
However, for Q4, we have several pieces of new info to consider. Namely, Intel’s disastrous security breaches which have been clear boosters to rival stocks such as AMD. Indeed AMD has experienced share gain of roughly 10-15% following Intel’s recently disclosed security flaws that enabled hackers to steal computer data. One of these flaws- Spectre (the other is called Meltdown)- could bring $90 million to AMD while also boosting AMD’s Epyc servers. The picture also wouldn’t be complete without considering the advantages brought by mining of the popular cryptocurrency Ethereum. For example, Susquehanna analyst Christopher Rolland believes AMD (and Nvidia) “likely benefited” from Q4 Ethereum-related GPU sales of over $500 million. Cryptocurrency miners have apparently already picked up $200 million worth of GPUs this month.
Turning to TipRanks, we can see that the stock scores a cautiously optimistic Moderate Buy consensus rating. This is based on 7 Buy, 3 Hold and 2 Sell ratings in the last three months. These ratings come with an average analyst price target of $16.35, indicating big potential upside for AMD of 25%.
Investors are salivating over today’s McEarnings report. All eyes are eager to get a glimpse of how well their new $1, $2 and $3 menu options have paid off and if they’ll aid in delivering another beat. Analysts expect the Big Mac maker to post EPS of $1.59- which would represent a year-over-increase of 10.4%. This is on revenue of $5.3 billion, down almost 13% from the same period last year (we explain why below).
On the positive front, we can see that the stock has tended to beat estimates recently. Indeed the stock is on a bit of a tear right now. With three positive 2017 quarters under its belt, shares are now up over 40% since the beginning of 2017. At the same time, it is expected that global comps will be strong for the quarter.
In order to fend off competition, McDonald’s recently introduced its new value menu and plenty of exciting digital innovations (see the popular MCD app which allows for mobile ordering). On the rival front, the company has to content with the popularity of other popular chains including Starbucks and China’s Yum Brands (which owns the KFC, Pizza Hut and Taco Bell franchises). So far McDonald’s is doing well, with far greater 6% comp gain than its rivals in the previous quarter. However both these companies have dangerous plans- Starbucks is offering a new lunch menu while Yum wants to double its delivery business.
At the same time, McDonald’s is also pushing a bold new re-franchising strategy. This will result in only 5% of restaurants owned by the company, with all the rest franchised out. The move is the reason for the projected decrease in revenue for the quarter from the same period last year. But while the company loses out on restaurant revenue, it will make big gains on the other side from rent, franchise fees and royalties. The benefit for shareholders is that although the company will shrink it will also become relatively more profitable.
From TipRanks, we can see that the company boasts a bullish ‘Strong Buy’ analyst consensus rating. Over the last three months, this breaks down into 10 buy ratings versus only 3 hold ratings. There have been no recent Sell ratings. Meanwhile the average analyst price target of $191.75 suggests over 9% upside potential from the current share price.
Most interestingly, we can see that the stock has enjoyed a series of recent price target increases. These crucial movements indicate a growing bullishness on MCD’s future and support for its latest initiatives. For example, top Barclays analyst Jeff Bernstein raised its target price for MCD from $193 to $205 (17% upside) earlier this month. Before this, Cowen & Co’s Andrew Charles raised his MCD target price from $185 to $200 (14% upside), as did Nomura’s Mark Kalinowski– from $190 to $198 (13% upside).