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SA: Profit With AMDProfit With AMDNov. 21, 2022 6:05 PM ETAdvanced Micro Devices, Inc. (AMD) Summary
It matters not where we have been but rather where we are going, and the forward guidance is pretty strongIt really does not matter where we have been, even if the stock had lost two-thirds of its value from the peak. It matters where we are going. There will be another few quarters of macro challenges for sure. With that said, we think if this market takes the stock back, you scale in as we have prescribed. This is because the Q4 outlook, in our opinion, was largely better than anticipated. Management guided $5.2-$5.8 billion for revenue which suggests the sequential declines in the top line at the midpoint would cease. If they hit the midpoint this would be a 14% increase vs Q4 2021. Should things go smoother than expected it would be solid growth. Within this range, 2022 revenue would be $23.2-$23.8 billion, which is a pretty sizable 43% drop or worse potentially if below the midpoint from 2021. Our opinion is that this is priced in. What we see going forward is continued PC demand being weak but ongoing growth in data center and the embedded businesses. The unknown will be cost-cutting measures. We hope these can be managed beyond expectations, and thereby widening margins. Currently margins are expected to be 51% in Q4, which we view as positive. We see Q4 EPS coming in at $0.65-$0.78. Cash, debt, and big time repurchasesLook, there is debt on hand, but there is a ton of cash, too, and there is a lot of cash flow here still. The balance sheet is in great shape. At the end of Q3, cash was $5.6 billion. Cash from operations were $965 million compared to $849 million a year ago, while free cash flow was $842 million compared to $764 million a year ago. We also like the shareholder-friendly use of cash. Cash was used to reduce debt, and to repurchase shares. We see this continuing. In Q3, the company bought back $617 million of stock in Q3, and that follows AMD repurchasing $920 million of its stock in Q2, boosting shareholder value. Take homeThe market priced in disaster, but AMD stock is up off the lows. We like the balance sheet and the strong management team here. More pressure may come in 2023, but we like starting to buy here as we have prescribed. If markets hiccup badly, you could get a full position of Advanced Micro Devices, Inc. in a short time period...... |
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