Advanced Micro Devices Inc Valuation – February 2019 $AMD
Company Profile (excerpt from Reuters): Advanced Micro Devices, Inc. (AMD), incorporated on May 1, 1969, is a global semiconductor company. The Company is engaged in offering x86 microprocessors, as standalone devices or as incorporated into an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs) and professional graphics, and, server and embedded processors and semi-custom System-on-Chip (SoC) products and technology for game consoles. The Company’s segments include the Computing and Graphics segment, and the Enterprise, Embedded and Semi-Custom segment. The Computing and Graphics segment primarily includes desktop and notebook processors and chipsets, discrete GPUs and professional graphics. The Enterprise, Embedded and Semi-Custom segment primarily includes server and embedded processors, semi-custom SoC products, development services, technology for game consoles and licensing portions of its intellectual property portfolio. The Company sells its products through its direct sales force and through independent distributors and sales representatives in both domestic and international markets. Its microprocessor customers consist primarily of original equipment manufacturers (OEMs), original design manufacturers (ODMs), system builders and independent distributors in both domestic and international markets.
Downloadable PDF version of this valuation:
ModernGraham Valuation of AMD – February 2019
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 | $24,489,084,253 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.78 | 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 | -333.33% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 304.50 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 20.82 | Fail | |
| 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 | 1.78 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.72 | Pass | |
| 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 | $0.08 |
| MG Growth Estimate | 15.00% |
| MG Value | $3.08 |
| Opinion | Overvalued |
| MG Grade | F |
| MG Value based on 3% Growth | $1.16 |
| MG Value based on 0% Growth | $0.68 |
| Market Implied Growth Rate | 148.00% |
| Current Price | $24.36 |
| % of Intrinsic Value | 790.91% |
Advanced Micro Devices, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.61 in 2015 to an estimated $0.08 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 148% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Advanced Micro Devices, Inc. revealed the company was trading above its Graham Number of $3.42. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 304.5, which was above the industry average of 29.46. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.23.
Advanced Micro Devices, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $0.23 |
| Graham Number | $3.42 |
| PEmg | 304.50 |
| Current Ratio | 1.78 |
| PB Ratio | 20.82 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Total Current Assets | $3,540,000,000 |
| Total Current Liabilities | $1,984,000,000 |
| Long-Term Debt | $1,114,000,000 |
| Total Assets | $4,556,000,000 |
| Intangible Assets | $515,000,000 |
| Total Liabilities | $3,290,000,000 |
| Shares Outstanding (Diluted Average) | 1,082,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $0.41 |
| Dec2018 | $0.32 |
| Dec2017 | -$0.03 |
| Dec2016 | -$0.60 |
| Dec2015 | -$0.84 |
| Dec2014 | -$0.53 |
| Dec2013 | -$0.11 |
| Dec2012 | -$1.60 |
| Dec2011 | $0.66 |
| Dec2010 | $0.64 |
| Dec2009 | $0.45 |
| Dec2008 | -$5.15 |
| Dec2007 | -$6.06 |
| Dec2006 | -$0.34 |
| Dec2005 | $0.40 |
| Dec2004 | $0.25 |
| Dec2003 | -$0.79 |
| Dec2002 | -$3.81 |
| Dec2001 | -$0.18 |
| Dec2000 | $2.89 |
| Dec1999 | -$0.30 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.08 |
| Dec2018 | -$0.17 |
| Dec2017 | -$0.42 |
| Dec2016 | -$0.65 |
| Dec2015 | -$0.61 |
| Dec2014 | -$0.40 |
| Dec2013 | -$0.22 |
| Dec2012 | -$0.51 |
| Dec2011 | -$0.61 |
| Dec2010 | -$1.53 |
| Dec2009 | -$2.45 |
| Dec2008 | -$3.33 |
| Dec2007 | -$2.05 |
| Dec2006 | -$0.32 |
| Dec2005 | -$0.48 |
| Dec2004 | -$0.72 |
| Dec2003 | -$0.95 |
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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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
