What's in Store for Advanced Micro (AMD) in Q3 Earnings?

Advanced Micro Devices Inc. AMD is set to report third-quarter 2017 results on Oct 24. Notably, the company has a positive record of earnings surprises in the trailing four quarters, with an average surprise of 35%.

In the last quarter, the company reported a loss of a penny per share, which was narrower than the Zacks Consensus Estimate of a loss of 2 cents per share. Revenues increased 19% year over year to $ 1.22 billion, primarily driven by growing demand for the Graphics Processor Units (GPU) and an expanding customer base. Revenues also beat the Zacks Consensus Estimate of $ 1.15 billion.           

AMD expects third-quarter 2017 revenues to increase 23% sequentially (+/- 3%). At the mid-point, this reflects 15% growth on a year-over-year basis. Further, gross margin is likely to be 34%, while non-GAAP operating expenses are estimated to be $ 400 million.

AMD stock has gained 23% year to date, underperforming the 28.4% rally of the industry it belongs to.

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

Factors to Consider

We note that AMD has introduced a host of new products during the quarter which is anticipated to boost the top-line positively going ahead. The company unveiled AMD4U comprising gaming applications and tools that are in compliance with AMD processors and graphics.

Notably, the lineup of Ryzen mainstream desktops was completed with AMD releasing Ryzen 3 1300X and Ryzen 3 1200 processors during the soon-to-be-reported quarter. The company also focused on certain advancements related to creation of professional content as evident from the company’s introduction of Radeon Pro WX 9100 and Radeon Pro SSG, a new range of professional graphics cards.

Advanced Micro Devices, Inc. Price and EPS Surprise

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

The company also launched Radeon RX Vega, a gaming card aimed at enhancing experiences on PC gaming platforms. Additionally, arrival of 16-core, 32-thread Ryzen Threadripper 1950X and 12-core, 24-thread Ryzen Threadripper 1920X processors is a further positive for the company.

We believe these new launches will prove to be beneficial for the company’s top line, thereby providing AMD with a competitive edge against industry peers like Intel INTC and NVIDIA NVDA.

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 -7.90%. This is because both the Most Accurate estimate is pegged at 7 cents per share and the Zacks Consensus Estimate stands at 8 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 #3, which when combined with a negative 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.

Stock to Consider

A better-ranked stock in the broader technology sector is Applied Materials, Inc. AMAT, with an Earnings ESP of 0.19% and sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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