(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Advanced Micro Devices, Inc. (AMD) reported blowout quarterly results on April 25, sending shares higher by over 26% since then. The better than expected results have been applauded by analysts, who have been aggressively upping their earnings and revenue forecast for the coming quarter and the full year. Additionally, analysts have started raising their price targets on the stock for the first time since early February, and now see the stock rising by 12.2% to an average price target of $13.80. Options traders are also betting shares of AMD rise as well, with some even betting the stock rises by nearly 26% by expiration on October 19. (For more, see also: AMD Could Be Poised to Breakout Higher.)
AMD reported better than expected earnings of $0.11 per share, nearly 25.7% better than the forecast. Additionally, the company beat on revenue by over 5%, reporting $1.647 billion.
Because of the better than expected results, analysts have been upping their estimates for the second quarter. Earnings estimates have climbed by 38% over the past month, and now analysts see earnings of $0.13 per share. Meanwhile, revenue forecasts have also been upped by 9% to $1.717 billion. Even more, they upped full-year estimates by nearly 22% to $0.45 per share, and revenue by 6% to $6.681 billion.
AMD EPS Estimates for Current Fiscal Year data by YCharts
The average price target on the stock has also been adjusted higher, rising by 1% to $13.80 since the end of April. The adjustment higher is minor, but more important is a shift in the trend. Analysts had been cutting their price target on the stock since early February, through late April, from $14.70 to $13.67—a decline of 7%. (For more, see also: AMD versus Intel: Is AMD Catching Up?)
AMD Price Target data by YCharts
The ratings on the stock are relatively neutral but have improved as well. As of January 31, of the 30 analysts covering the stock, 30% rated shares a "buy" or an "outperform." As of May 14, of the 31 analysts covering the stock, 39% now rate the shares as a "buy" or an "outperform."
Bullish Options Bets
Some options traders are betting shares continue rising to as high as $15.60, using the options set for expiration on October 19. The $15 strike price has nearly 49,000 open call contracts and have a cost of about $0.60 per contract. Therefore, the strike price would need to rise to $15.60 to break even. The open call contracts at the $15 strike price have a dollar value of about $3.1 million.
The recent strength of the quarterly results has sent shares of AMD soaring and appears to have changed the outlook for the stock.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.