U.S. Markets closed

Can Advanced Micro (AMD) Pull an Earnings Surprise in Q2?

Zacks Equity Research

Advanced Micro Devices Inc. AMD is set to report second-quarter 2017 results on Jul 25. Notably, the company has a mixed record of earnings surprises in the trailing four quarters, with an average positive surprise of 34.09%.

In the last quarter, the company reported a loss of 7 cents per share, which was in line with the Zacks Consensus Estimate. Revenues increased 18.3% year over year to $984 million primarily driven by higher Graphics Processor Unit (GPU) sales. Additionally, revenues beat the Zacks Consensus Estimate of $983 million.

AMD expects second-quarter 2017 revenues to increase 17% sequentially (+/- 3%). At mid-point this reflects 12% growth on a year-over-year basis. Further, gross margin is likely to be 33%, while non-GAAP operating expenses are estimated to be $370 million.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

We note that the stock is up 21.7% on a year-to-date basis, which reflects bullish expectations from AMD’s expanding product portfolio (Ryzen Pro, Vega accelerator, EPYC server processor, Ryzen desktop processor). The company has also benefited from strong demand of its GPU cards, which are now increasingly used to mine cryptocurrencies like Bitcoin and Ethereum.

Advanced Micro Devices, Inc. Price and EPS Surprise

Advanced Micro Devices, Inc. Price and EPS Surprise | Advanced Micro Devices, Inc. Quote

However, over the same time frame, the stock has underperformed the 30.8% rally of the industry it belongs to. The underperformance reflects stiff competition from NVIDIA NVDA in the GPU space and Intel in the consumer PC market.

Nevertheless, AMD’s improving position in key markets – like virtual reality (VR) and augmented reality (AR), gaming and parallel processing – driven by the launch of Radeon and Ryzen chips is a key catalyst.

Earnings Whispers

Our proven model does not conclusively show that Advanced Micro is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Advanced Micro’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 3 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Advanced Micro carries a Zacks Rank #2, which when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Cypress Semiconductor CY with an Earnings ESP of +11.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here..

Lam Research LRCX with an Earnings ESP of +1.31% and a Zacks Rank #1.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cypress Semiconductor Corporation (CY) : Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Lam Research Corporation (LRCX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research