AMD: Time To Spend Some Money

seekingalpha2022-03-19

SummaryAMD has fallen close to 8-month lows near $110.The chip company has $9 billion worth of stock buyback power.The stock now trades at bargain rates worthy of aggressive buybacks with a '23 EPS ...

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Comments

kianlin
2022-03-21
kianlin
Like pls. Thanks
Sphere
2022-03-21
Sphere
Up
sega
2022-03-21
sega
😀
YJ1234
2022-03-21
YJ1234
Ok
KFChen
2022-03-21
KFChen
Perhaps
Syww
2022-03-21
Syww
[Strong] [Strong]

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The chip company still trades near the recent low of $102 despite the valuation turning into a sudden value play. My investment thesis remains ultra Bullish now, especially with AMD suddenly having a large stock buyback worth unleashing.$8 Billion BuybackBack on February 24, AMD launched a new $8 billion share buyback program on top of the prior program from May 2021. The chip company spent $1.8 billion on share buybacks last year, leaving $1.2 billion left for this year for total buyback power to unleash in 2022 of $9.2 billion.In general, share buyback programs aren't appealing for aggressive growth stocks trading at rich multiples. A strong balance sheet with a large cash balance is an asset and provides the business with the security to invest as needed in new growth opportunities.Besides, a stock trading at the normal AMD forward PE multiples of over 30x don't actually reduce share counts to a great extent. The finance department is better focused on improving operations versus repurchasing shares.In the case of AMD, with the recent collapse of tech stocks, the company needs to become more aggressive with the share buyback plan. The chip company ended March 17 with the stock at $112 with a market cap of $180 billion.The $8 billion buyback power repurchases around 5% of the outstanding shares. Clearly, AMD shouldn't chase prices much above the current price, as the large buyback amount quickly loses the impact.The company ended the quarter with a net cash balance (shown as a negative) of $3.3 billion even after already spending the $1.8 billion last year on share buybacks. The company closed the Xilinx deal in February with their cash balance at the end of 2021 of $2.2 billion, providing the combined AMD with a ~$5.5 billion net cash balance.Data by YChartsJust AMD alone generated free cash flow of $3.2 billion last year despite spending on long-term supply chain capacity to increase future supplies. Xilinx alone provides another big source of cash flows generating $0.84 billion for the last 9 months of 2021.The combined AMD is expected to see substantial revenue growth this year. Analysts are now targeting growth in the 55% range in 2022. The chip company should be flush with cash flow this year with a general assumption of 55% growth, boosting the $4+ billion in FCF last year to $6+ billion this year before even considering the start of $300 million in cost synergies.In total, AMD should have around $11+ billion in total cash available to repurchase shares. No doubt, the chip company has the balance sheet and cash flows to repurchase shares. The only real question is whether the company should spend the money.Not Just Downside ProtectionWhile AMD should focus on the buyback providing downside protection for the stock, a share reduction in the 5% range would start providing solid upside for shareholders. The company should only start throwing off more and more cash in future years due to the limited capital needed to run the fabless business.My previous research highlighted why AMD has the EPS potential of at least $5.50 in 2023, but analysts only have EPS targets at $4.74 next year. Either way, though, a 5% share reduction would boost the current analyst 2023 EPS targets by $0.24.Data by YChartsThe semi. company previously wasn't thought as capable of generating earnings due to the dominating position of Intel (INTC) is now poised to boost EPS by up to $0.24 via just a share buyback. AMD only trades at 24x current analyst 2023 EPS targets, and these numbers appear very conservative.My previous 2023 EPS target of $5.50 didn't even factor in a boost from lower share counts. A 5% share reduction would boost that EPS target by $0.28 and push AMD even closer to a $6 EPS. The stock only trades at 19x the updated share buybacks boosted EPS.TakeawayThe key investor takeaway is that AMD isn't likely to trade down at the $112 level long enough for the chip company to make material amounts of share buybacks. If this does happen, shareholders win and have solid downside protection at this level.Ultimately, AMD isn't likely to see much financial benefit from the share buybacks, but an investor should feel comfortable buying the chip stock here with the downside protection. The company should definitely spend every penny on buybacks at this level.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9034633423,"gmtCreate":1647871659995,"gmtModify":1676534274123,"author":{"id":"3572667090246755","authorId":"3572667090246755","name":"kianlin","avatar":"https://community-static.tradeup.com/news/154aa4e1f22d41dbdd9a74a3b7a44bcb","vip":1,"crmLevel":8,"crmLevelSwitch":0,"authorIdStr":"3572667090246755","idStr":"3572667090246755"},"htmlText":"Like pls. Thanks","listText":"Like pls. Thanks","text":"Like pls. Thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034633423","repostId":2220370899,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034349233,"gmtCreate":1647819510210,"gmtModify":1676534267568,"author":{"id":"3573432013960035","authorId":"3573432013960035","name":"Sphere","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":4,"crmLevelSwitch":0,"authorIdStr":"3573432013960035","idStr":"3573432013960035"},"htmlText":"Up","listText":"Up","text":"Up","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034349233","repostId":2220370899,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034355554,"gmtCreate":1647818999940,"gmtModify":1676534267490,"author":{"id":"3575161996739108","authorId":"3575161996739108","name":"sega","avatar":"https://static.tigerbbs.com/4f2b00f4df6434351b6947e1ed72a286","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"3575161996739108","idStr":"3575161996739108"},"htmlText":"😀","listText":"😀","text":"😀","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034355554","repostId":2220370899,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034359382,"gmtCreate":1647818337409,"gmtModify":1676534267347,"author":{"id":"3569451715493894","authorId":"3569451715493894","name":"YJ1234","avatar":"https://static.tigerbbs.com/da7bfb74470f0f05e980715d2cba26f6","vip":1,"crmLevel":3,"crmLevelSwitch":0,"authorIdStr":"3569451715493894","idStr":"3569451715493894"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034359382","repostId":2220370899,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034350649,"gmtCreate":1647818213985,"gmtModify":1676534267239,"author":{"id":"3576990193651421","authorId":"3576990193651421","name":"KFChen","avatar":"https://static.tigerbbs.com/6830fa3fe8a82d29953fbb2e6153801e","vip":1,"crmLevel":6,"crmLevelSwitch":0,"authorIdStr":"3576990193651421","idStr":"3576990193651421"},"htmlText":"Perhaps","listText":"Perhaps","text":"Perhaps","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034350649","repostId":2220370899,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9034369283,"gmtCreate":1647815092515,"gmtModify":1676534266790,"author":{"id":"4087953623473280","authorId":"4087953623473280","name":"Syww","avatar":"https://static.tigerbbs.com/eb83576edbcfb98efcb33d606f168221","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"4087953623473280","idStr":"4087953623473280"},"htmlText":"[Strong]&nbsp;[Strong]&nbsp;","listText":"[Strong]&nbsp;[Strong]&nbsp;","text":"[Strong] [Strong]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9034369283","repostId":2220370899,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":813,"commentSize":61,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2220370899"}