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Alex Cho

AMD Earnings Review: Deutsche Bank Reduces Price Target From $11 to $10

Ross Seymore from Deutsche Bank got incrementally bearish following the earnings report, as he reduced his price target from $11 to $10, and maintained his Hold recommendation.

Here were the key highlights from the research note released to clients of Deutsche Bank today:

AMD posted in-line revs on stronger C&G as the co executed on its Ryzen 7 launch in 1Q, with the co quantifying its 2017 rev guidance to “increase low double digit % y/y” vs. “up y/y” previously. Looking forward, while AMD’s 2Q rev guidance is in-line with our above Street est, the GM guidance (-60bps q/q) seems to imply a higher mix of lower-margin EESC (vs. C&G), with opex also higher than we had modeled, even when excluding the impact of capitalizing mask sets which benefits opex at the detriment to capex. We fear the higher combined opex/capex reflects AMD’s need for greater sustained spending to combat the significantly greater investments made by its larger competitors.

Our $10 P/T ($11 prior) is based on a consistent combined ~20x CY18E P/E and ~1.8x EV/S, on our lower EPS estimates. The P/E is higher than the semi industry due to AMD just returning to profitability. Risks include: MPU/GPU/semi-custom growth, share gains/losses, ASP declines and execution on new products and design wins.

Keep in mind Seymore is just doing his job as an investment bank analyst, and his to weight securities recommendation using a consistent set of criteria. Obviously, he’s more cautious given expense ramp may worsen.

We think the narrative will shift upon revenue acceleration in back half 2017, which we detail here.

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