By Wallace Witkowski, MarketWatch , Emily Bary
One analyst wonders if AMD is setting itself up for another downward revision to its forecast
Analysts may be fretting about Advanced Micro Devices Inc.'s ability to live up to high expectations after the company delivered a disappointing forecast for the third quarter and lowered its full-year outlook but that didn't stop more than half of them hiking their price targets on the stock.
AMD (AMD) shares dropped 10% to close at $30.45, and touched an intraday low of $30.30, while the S&P 500 index finished down 1.1% and the PHLX Semiconductor Index fell 3.2%. For the year, AMD shares are still up 65%, while the S&P 500 is up 19% and the SOX index is up nearly 34%.
All year, the stock has been riding a wave of enthusiasm for the company's new offerings, which are expected to ramp up in the second half of the year. But as the chipmaker continues to see revenue declines with its semi-custom gaming-console chips, some analysts are questioning whether the lowered outlook () represents still too high a bar.
Even with those concerns, 18 analysts still hiked their price targets on the stock following earnings, boosting the average price target to $43.24 from $30.62, according to FactSet data. Of the 33 analysts who cover AMD, 12 have buy or overweight ratings, 17 have hold ratings, and four have sell ratings.
The full-year target "implies a very difficult fourth quarter, which is now at risk," wrote Susquehanna Financial analyst Christopher Rolland, who has a neutral rating and $32 target on the stock.
Late Tuesday, AMD forecast that 2019 revenue would rise a "mid-single-digit percent over 2018," versus its "high single-digit" percent rise forecast in April. In response, analysts lowered their full-year revenue target to an average $6.87 billion. The previous $6.78 billion consensus would have represented a 6.1% gain.
"Additionally, management highlighted significant console headwinds in 2H19, putting the growth burden entirely on the shoulders of CPU, GPU, and server (in that order of impact)," Rolland continued. "So it raises THE big question... does AMD actually have visibility into massive 4Q sequential growth, or are they setting themselves up for another downward revision?"
Opinion: All hopes for AMD now rest on the holiday season ()
Baird's Tristan Gerra, who has a neutral rating and $30 target, chimed in with similar concerns.
"High stock valuation combined with our view inferred 4Q revenue guidance may be difficult to reach keeps our model below the full-year revenue guidance, with ongoing macro risks, a more aggressive ramp from Intel as it recovers from shortage issues, along with lingering GPU inventory issues," Gerra wrote, though he is "incrementally positive" on AMD's potential to realize its desired market-share gains with its Epyc server chips.
Others remained upbeat about what the rest of the year could hold for AMD, including Wells Fargo's Aaron Rakers, who has a outperform rating and $40 target price on the stock.
"While AMD's slightly tempered 2019 outlook will likely put some pressure on shares...we think our positive thesis on AMD as a 2H2019 7-nanometer third-generation Ryzen, Radeon RX 5700, and second-generation Epyc Rome server CPU product-cycle momentum/upside story is unchanged," Rakers said.
Opinion: Even Intel doesn't seem to know what's going to happen with Intel ()
Jefferies analyst Mark Lipacis assumes that AMD's full-year outlook is actually cautious given a recent track record of strong execution amid stumbles from rival Intel Corp. (INTC) "This guidance translates into a 22% [quarter-over-quarter] growth for 4Q19 with gross margins at 43% and we think the outlook is conservative," wrote Lipacis, who rates the stock a buy and hiked his target to $40 from $34.
Read: Apple surges toward trillion-dollar status again after an unlikely performer saves the day ()
Cowen analyst Matthew Ramsay, who has an outperform rating and a $40 price target, said even with soft China and console sales, the company's outlook holds true to its product ramp-up.
Ramsay said "we believe AMD's Q3 and full year guidance reflect strong initial ramps of important and margin accretive 7nm desktop, GPU and server products."
-Wallace Witkowski; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
July 31, 2019 16:38 ET (20:38 GMT)
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