Posts about Advanced Micro Devices
Good Morning Reddit!
It is me again! Due to requests for an analysis on AMD after i posted a detailed analysis on INTC, soon AMD will have the earning calls so I worked expeditiously to provide you a quick one on the matter!
I must warn that this is just a quick observation of the 2021 balance sheets, ratios and calculations and price forecast. With that, i can already confirm that the company is already over my expectations in regard of revenue, even tho costs have surpassed it too. Net income is still in range to forecast.
TL:DR
$51.28 factoring Earning Based growth rate
$54.94 factoring in Earning Based growth rate and ROA
$58.15 average of all the factors considered
$4B net income by EOY
10.15% overvalued
Hold and Accumulate
Assumptions
Data
Risk Analysis
Sector Comparison
Ratios
Evaluation Methods
Google Search Trends
Institutional rating changes
Final Comment
Stable average growth until 2026
Company does not pay dividends and reinvest all the earnings into the company
Slowdown of the economy and the semiconductor sector
| Data | Number | Source |
|---|---|---|
| Levered Beta | 2.05 | Yahoo Finance |
| Unlevered Beta | 2.04 | Computing |
| Market Expected Return | 9.4% | Motley's Fools, 50y average, 1972-2021 |
| US Interest Rate | 4% | Trading Economics, end year forecast rate 31/10/2022 |
| Risk Free Rate | 4.054% | Yahoo Finance, 10y US Bonds |
| Risk Premium | 5.19% | Computing |
| Corp Tax | 13.98% | Computing, Tax provision / Income before taxes |
| CAPM | 14.95% | Computing, using unlevered beta |
| WACC | 14.89% | Computing, taking in count credit rating |
| RRR | 11.51% | Computing |
| AAA Bond Yield | 5.31% | Moody's Seasoned Aaa Corporate Bond Yield 31/10/2022 |
| EPS | 2.49 | Yahoo Finance |
| Average US GDP Growth | 3.18% | TradingEconomics 1947 - 2022 |
| Outstanding shares | 1,614,321,000 | Excel Stock Data 31/10/2022 |
| Next Years Analyst growth estimate | 7.5% | Yahoo finance |
| Next 5 Years Analysts growth estimate | 25.46% | Yahoo finance |
| Growth Rate by earning retention | 30.88% | Computing |
| Growth Rate by ROA & Retention | 34.16% | Computing |
| ROA | 25.46% | Computing |
| Earning Retention Rate | 100% | Balance sheet |
| P/E | 24.9 | Yahoo Finance |
| PEG | 0.81 | Computing |
| Market P/E | 20.29 | Mutlpl.com |
Taking in count the stock's price movement from its maximum timeline, from 1985 to 2022, we have the following data:
| Expected Return | 1.91% |
|---|---|
| Variance | 3.26% |
| Standard Deviation | 18.33% |
By taking the Semiconductor Sector in count, which include machinery producers like Murata MFG or TE Connectivity Ltd and differentiate if from the Semiconductor Industry, where we have only the closely related to chip making companies like TSMC, NVIDIA or Intel, we have the following comparison:
| Indicator | Numbers |
|---|---|
| AMD Unlevered Beta | 2.04 |
| Sector Beta | 1.33 |
| Industry Beta | 1.40 |
| P/E | 24.9 |
| Sector P/E | 21.54 |
| Industry P/E | 20.63 |
| Market P/E | 20.29 |
Profitability
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Gross Profit Margin | 46.01% | 31.49% | 22.00% |
| ROA | 25.46% | 27.78% | 5.66% |
Efficiency
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Accounts Receivable Turnover | 53 | 74 | 84 |
| Accounts Payable Turnover | 114 | 140 | 151 |
| Asset Turnover Ratio | 1.54 | 1.30 | 1.27 |
| Inventory Turnover | 84 | 94 | 93 |
| Days sales in Inventory ratio | 4.35 | 3.87 | 3.93 |
Management Effectiveness
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| ROE | 42.18% | 42.66% | 12.06% |
| ROIC | 43.20% | 23.73% | 12.06% |
| DuPont Analysis | 62.87% | 11.42% | 17.12% |
Note: DuPont Analysis has the following numbers for 2021:
0.192 net profit margin
1.537 asset turn over
1.603 financial leverage
Financial
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Cash Ratio | 85.09% | 94.75% | 63.71% |
| Working Capital | 2.02 | 2.54 | 1.95 |
| Acid Test | 1.49 | 1.81 | 1.43 |
| Debt Ratio | 5.32% | 5.93% | 12.08% |
| Debt to Equity | 8.82% | 9.10% | 25.75% |
| Interest Coverage Ratio | 233.21 | 92.49 | 30.51 |
Value
| Indicator | 2021 | 2020 | 2019 |
|---|---|---|---|
| Price to Book Ratio | 13.35 | 16.50 | 34.07 |
| Income Quality | 1.11 | 0.43 | 1.45 |
In this evaluation, i used the following methods:
Adjusted Graham Formula
FCF Evaluation Method
Discounted Unleveread Free Cash Flow
The Final Price is the average price extrapolated from those three ways.
Note: Dividend Discount Model and Total Payout Model are not considered due to the fact that they do not pay dividends.
Adjusted Graham Formula
| Data | Number |
|---|---|
| EPS | 2.49 |
| P/E | 7 |
| Growth Rate | 30.88 |
| 1g | 1 |
| Corporate Bond | 4.4 |
| AAA Bond Yield | 5.13 |
| Intrinsic Value | $80.90 |
Free Cash Flow Evaluation Method
| Data | Number |
|---|---|
| FCF | 3,220,000,000 |
| Discount Rate | 14.89% |
| Growth Rate | 30.88% |
| Per share Value | $16.33 |
Discounted Unleveread Free Cash Flow (2022 to 2026)
| Data | |
|---|---|
| Discount Rate | 14.89% |
| UFCF growth rate | 30.88% |
| Average US GDP Growth | 3.18% |
| Shares outstanding | 1,614,321,000 |
| Current Value | $56.61 |
Observed Trend, 12 months worldwide, category: "internet & communication"
| Intel | #1 | 80 |
|---|---|---|
| NVIDIA | #2 | 65 |
| AMD | #3 | 56 |
Changes in rating as for the 2nd November 2022
| Institution | Previous | Current | Rating |
|---|---|---|---|
| UBS | $80 | $75 | Neutral |
| Keybanc | $100 | $85 | Overweight |
| Deutsche Bank | $70 | $68 | Hold |
| Raymond James | $100 | $80 | Strong Buy |
| Mizuho | $102 | $95 | Buy |
| Stifel | $100 | $91 | Buy |
Changes in rating as for the 31th October2022
| Institution | Previous | Current | Rating |
|---|---|---|---|
| Morgan Stanley | $86 | $77 | Overweight |
As we can see, AMD is a good and stable company, with huge potential from its fundamentals. We can expect at least 1.91% return in perpetual from this stock if we want to hold it forever, with a probability to see swings between +20% and -20%.
AMD had a high beta compare to the sector and the industry, this makes it riskier and potentially very lucrative than the average peers.
Its P/E is above the industry and the market itself, probably a little bit overvalued.
High profits margin and ROA suggest us a potential growth, same for ROE and ROIC. DuPont Analysis shows a positive 62.87%.
Financial indicators point out the fact that AMD's financials are stable and not in danger in any front in the short and mid run.
We shall take in mind that 2020 and 2021 were outliers years, and due to the lockdown the company had huge profits came with speculative bubble of those two years. The speculative bubble pushed for a positive trend on the company, inflating its price well over its fundamental value. We shall expect to see a regression towards the mean growth range and the price to stabilize to its fundamental, discounting off the hype and trend.
If this company paid dividends, it would have a higher evaluation.
Its current fair value is
| Price | Factors considered |
|---|---|
| $51.28 | WACC + Earning Based growth rate |
| $47.80 | WACC + Earning Based growth rate + interest rates of 4% |
| $54.94 | WACC + Earning Based growth rate + ROA based growth |
| $50 | WACC + Earning Based growth + ROA based growth + interest rates of 4% |
| $86 | RRR + Earning Based growth |
| $58.90 | RRR + Earning Based growth + Interest rates of 4% |
| $58.15 | Average of all the factors considered |
Reminder that this is based on the balance sheet of 2021 business year's end, in fact, growth in revenue is already over expectation, as well as costs one, but net income not yet, still under 1B missing until now, expecting a net income of 4B EOY
The company is a Long Hold and have high probability to pay dividends in the future, but as for now, it is overvalued by 10-15% due to last year trend. Good buying positions shall be around 50-55 dollars
Edit: added "Institutional rating changes" and included different factors in the final price
What do you think? Any ideas? Suggestions? Feel free to comment! :D
This is not financial advice
