In less than a week from today, Tuesday May 2, 2023, the semiconductor giant Advanced micro devices (NASDAQ:AMD) is scheduled to report its first-quarter 2023 financial results. Many investors seem nervous about that; since early April, AMD shares are down 13%.
But you know who isn’t nervous about AMD’s earnings report? Stifel analyst ruben roy.
In a recent research note, Roy reiterated his “Buy” rating on AMD shares, along with a $98 price target, which, coincidentally, would take the stock back to where it started in April. (To view Roy’s history, Click here)
The analyst isn’t 100% bullish on AMD in the near term, warning of “headwinds” which, while they may not be felt too much in Q1, will make themselves known in Q2. Longer term though, Roy believes AMD remains a good bet to outperform the stock market as it continues to gobble up market share over time.
More on that in a moment. But first, the short-term picture:
AMD has told investors to expect a 10% year-over-year revenue decline in the first quarter (about $5.3 billion), and Roy agrees with that forecast. Earnings-wise, the picture is a bit uglier, with consensus forecasts focusing on a 50% decline in earnings to $0.56 per share, pro forma, and again, Roy agrees with that number. .
Interestingly, where Roy differs from his fellow stock analysts is in the second quarter, where most of Wall Street expects a sequential improvement in both revenue and earnings, to $5.5 billion and $0.63 per share, respectively. . Predicting that the global semiconductor market will see a “less robust” recovery, however, Roy forecasts revenue below $5.4 billion (down 18% year-over-year) and earnings of just $0.60 per share (down from 43% year over year).
In fact, Roy sees AMD falling short of expectations for most of the year. While Street has AMD reporting annual revenue of $23.6 billion by 2023, Roy thinks $23.4 billion (a 1% decrease from 2022) is a bit closer to the truth. And where Street has AMD earning $3.07, pro forma, this year, Roy is a bit more conservative, predicting even $3 a share, down 15%.
What’s more, even as things start to pick up again for semiconductors and AMD, Roy sees the rally taking shape more slowly than other analysts expected. In 2024, his prediction of 17% revenue growth (versus 2023) is nearly a percentage point slower than the consensus view. He also believes that the 2024 earnings of $4.10 will be lower than the consensus figure of $4.30.
However, perhaps no one will notice if they do. A rally to even $4.10 would still represent solid 36% year-over-year growth.
Ultimately, whether or not Roy is proven right in the short to medium term, his long-term vision remains intact. At a stock price 20 times what you expect the stock to earn in 2024, AMD would be priced quite attractively if it ends up increasing profits 36% that year. Of course, that still leaves perhaps 20 months of unappetizing earnings that investors will need to live through from time to time.
But if all goes to plan, the rewards in the long run could be worth the pain in the short to medium term.
Let’s now turn our attention to the rest of the Street where, based on 19 Buys and 5 Holds, AMD currently has a Strong Buy consensus rating. The average price target is $100.38, indicating 17.5% upside potential for the year ahead. (See AMD Stock Forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.