Why Advanced Micro Devices (AMD) Is Up Today

NEW YORK (TheStreet) -- Advanced Micro Devices (AMD) was gaining 1.8% to $3.88 Tuesday after Ascendiant Capital initiated its coverage of the chipmaker.

Analyst Cody G. Acree started coverage of AMD for the analyst firm, giving the company a "buy" rating and a price target of $5. Acree wrote "While we are not expecting any singular dramatic near-term catalyst, we do see the company working through a methodic restructuring and repositioning that has already reduced spending and earned significant wins that are driving growth at Sony (SNE), Microsoft  (MSFT), Verizon  (VZ), Apple  (AAPL) and others."

Acree notes that AMD's restructuring reduced headcount by 15% and lowered operating expenses by 26%. The restructuring also helped make the chipmaker cash flow positive.

The analyst believes that AMD's new APU chips can help it "regain a moderate share" of the consumer PC market.

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TheStreet Ratings team rates ADVANCED MICRO DEVICES as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate ADVANCED MICRO DEVICES (AMD) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been very high debt management risk by most measures."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is very high at 3.78 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, AMD's quick ratio is somewhat strong at 1.19, demonstrating the ability to handle short-term liquidity needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, ADVANCED MICRO DEVICES's return on equity significantly trails that of both the industry average and the S&P 500.
  • 37.95% is the gross profit margin for ADVANCED MICRO DEVICES which we consider to be strong. Regardless of AMD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AMD's net profit margin of 5.60% is significantly lower than the industry average.
  • Net operating cash flow has significantly increased by 107.34% to $21.00 million when compared to the same quarter last year. In addition, ADVANCED MICRO DEVICES has also vastly surpassed the industry average cash flow growth rate of -9.58%.
  • This stock has increased by 53.49% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in AMD do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
  • You can view the full analysis from the report here: AMD Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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