Factors Behind Our Revised Price Estimate For AMD

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AMD
Advanced Micro Devices

AMD (NYSE:AMD) has seen an approximate 150% increase in its stock price since the start of 2016. We recently increased our valuation for the company by more than 80%, from $2.60 to $4.69 at present. Below are the main changes that led to the significant increase in our valuation

1. Revised Estimates (~40%)

  • We revised our All Other operating income (adjusted for certain non-cash expenses) estimate for 2016 from -$128 million to $19.2 million. This accounted for a majority of the upside in our price estimate for AMD. The high operating loss in the All Others segment in the last few years was on account of net restructuring and other special charges, inventory adjustments and workforce re-balancing severance charges, etc. So far this year, after adding back certain non-cash expenses, the All Other operating is around $10 million, as the company reversed certain restructuring charges. We forecast the figure to stay around the estimated 2017 levels, for the rest of our forecast period, in the absence of any concrete information and legal issues.

  • Computing & Graphics EBITDA margin to increase to 3.8% by the end of our forecast period, as compared to our initial estimate of 3%. New chips can help increase productivity and lower costs.
  • Lowered our guidance of effective tax rate from 33.8% to 32.8%, by the end of our review period.

AMD

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2. Changing Forecast Period From 2016-2022 to 2017-2023 (~15%): We use mid-year discounting and since we are more than halfway through the current calendar year, we start discounting future cash flows 2017 onward and extent the forecast horizon from 2022 to 2023. This led to a 15% increase in our valuation for the company.

3. Increase in Net Cash (~30%): AMD’s net cash and cash equivalent increased from $716 million in Q1 2016 to $957 million in Q2 2016, mainly driven by the cash inflow from the sale of equity interests in ATMP JV. The company’s total debt remains roughly the same.

See our complete analysis for AMD here

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