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Advanced Micro Devices Inc. Analysis – Initial Coverage $AMD

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Advanced Micro Devices Inc. (AMD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Advanced Micro Devices, Inc. is a global semiconductor company with facilities across the world. The Company offers x86 microprocessors, as standalone devices or as incorporated as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs) and professional graphics, and server and embedded processors, dense servers, semi-custom System-on-Chip (SoC) products and technology for game consoles. The Company operates in two segments: the Computing and Graphics segment, which includes desktop and notebook processors and chipsets, discrete GPUs and professional graphics, and the Enterprise, Embedded and Semi-Custom segment, which includes server and embedded processors, dense servers, semi-custom SoC products, engineering services and royalties. The Company sells its products through direct sales force and through independent distributors and sales representatives in both domestic and international markets.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of AMD

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg -0.58
MG Growth Estimate 0.84%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth -$8.35
MG Value based on 0% Growth -$4.90
Market Implied Growth Rate -5.85%
Current Price $1.84
% of Intrinsic Value N/A

Advanced Micro Devices Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor.  The company does not pass a single requirement for the Defensive Investor.  The Enterprising Investor is concerned by the level of debt relative to the net current assets, the lack of dividends and the lack of earnings stability over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued due to its long history of negative EPSmg (normalized earnings).  Such a result does not support a positive valuation based on earnings.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Advanced Micro Devices Inc. (AMD)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AMD Charts - August 2015

Net Current Asset Value (NCAV) -$1.38
PEmg -3.19
Current Ratio 1.75
PB Ratio -10.15
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $2,451,000,000
Total Current Liabilities $1,399,000,000
Long-Term Debt $2,034,000,000
Total Assets $3,381,000,000
Intangible Assets $533,000,000
Total Liabilities $3,522,000,000
Outstanding Shares 778,000,000

Earnings Per Share History

Next Fiscal Year Estimate -$0.73
Dec14 -$0.53
Dec13 -$0.11
Dec12 -$1.60
Dec11 $0.66
Dec10 $0.64
Dec09 $0.45
Dec08 -$5.15
Dec07 -$6.06
Dec06 -$0.34
Dec05 $0.40
Dec04 $0.25
Dec03 -$0.79
Dec02 -$3.81
Dec01 -$0.18
Dec00 $2.89
Dec99 -$0.30
Dec98 -$0.36
Dec97 -$0.08
Dec96 -$0.26
Dec95 $0.79

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$0.58
Dec14 -$0.40
Dec13 -$0.22
Dec12 -$0.51
Dec11 -$0.61
Dec10 -$1.53
Dec09 -$2.45
Dec08 -$3.33
Dec07 -$2.05
Dec06 -$0.32
Dec05 -$0.48
Dec04 -$0.72
Dec03 -$0.95
Dec02 -$0.80
Dec01 $0.60
Dec00 $0.78
Dec99 -$0.19

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This is not investment advice and all readers should speak with a registered investment adviser prior to making any investment decision.  ModernGraham is not affiliated with the company in any manner.

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