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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Downloadable PDF version of this valuation:
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
| 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 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
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 |
Recommended Reading:
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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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