AMD's Earnings Aren't Enough To Support Its Valuation, Analyst Says

Advanced Micro Devices, Inc. AMD reported fourth-quarter non-GAAP earnings of 8 cents per share compared to a 1-cent per share loss a year-ago. Revenues were up 33 percent year-over-year to $1.48 billion in the earnings report, issued after the close Tuesday. 

The results exceeded Street estimates.

The Analyst

Morgan Stanley analyst Joseph Moore reiterated an Underweight rating on AMD with an $8 price target.

The Thesis

The fourth-quarter results reflect solid execution, but even with tailwinds, it is hard for the earnings to justify the stock price, Moore said in a Wednesday note.

This is despite the analyst's view that ethereum's 300-percent move since October could drive strong mining revenues  and that AMD's core business possesses have growth potential.

Concerns include a deceleration in mining that would reduce units and ASPs in discreet graphics, making it hard for the strong product momentum in AMD's core business to offset the drop, Moore said. 

Revenues and earnings per share, though exceeding Street forecasts, trailed estimates in Q4. Revenue in the computing and graphics segment rose 17 percent sequentially to $958 million, thanks to crypto mining and Ryzen CPU demand, the analyst said. 

The enterprise, embedded and semi-custom segments saw a 37-percent sequential drop, hurt by a seasonal decline in consoles, Moore said. 

AMD's Q1 revenue guidance was above the consensus estimate and in-line with its recently raised numbers after adjusting for accounting, according to Morgan Stanley. 

The research firm lowered its calendar year 2018 EPS estimate by 4 cents to 31 cents; and by 2 cents to 31 cents in 2019 to reflect higher operating expenditures and taxes, Moore said. About $1.3 billion in incremental revenue from Zen in 2019 takes Morgan Stanley's calendar year 2018 revenue estimate to $6 billion, he said. 

"We see 2018 as a very strong year on multiple fronts," Moore said. " ... But we're not sure that in totality those things get better in 2019, which limits our willingness to pay a high multiple on 2018 earnings."

The Price Action

AMD shares are up over 20 percent over the past year.

The stock was last seen trading up 6.06 percent at $13.65 Wednesday afternoon. 

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