Will Advanced Micro (AMD) Disappoint This Earnings Season?

Zacks

Advanced Micro Devices, Inc. (AMD) is set to report fourth-quarter 2013 results on Jan 21. Last quarter, it posted a 100% positive surprise. Let us see how things are shaping up for this announcement.

Growth Factors this Past Quarter

Advanced Micro’s third-quarter earnings exceeded the Zacks Consensus Estimate of 2 cents owing to solid execution and cost control management. Revenues were up 25.8% sequentially and 15.1% year over year. It is the highest sequential revenue growth rate in the past five years. The solid growth was driven by a 109.7% jump in the Graphics and Visual Solutions segment, primarily from the ramp up of semi-custom System-on-Chips (SoCs).

However, gross margins of 35.7% decreased sequentially but were up 480 basis points (bps) from the year-ago quarter. The sequential decrease was due to unfavorable mix and higher-than-expected operating expenses.

For the fourth quarter, AMD expects fourth-quarter 2013 revenues to increase 5.0% (+/- 3.0%) sequentially. Non-GAAP gross margin is expected to be 35%. Operating expenses are expected to remain flat sequentially at approximately $450.0 million.

Earnings Whispers?

Our proven model does not conclusively show that AMD will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Most Accurate estimate stands at 5 cents while the Zacks Consensus Estimate is higher at 6 cents. That is a difference of -16.67%.

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

Other Stocks to Consider

You could consider other stocks with a positive earnings ESP and Zacks Rank #1, 2 or 3 such as:

Bally Technologies, Inc. (BYI), with Earnings ESP of +3.13% and a Zacks Rank #1 (Strong Buy).

Western Digital Corporation (WDC), with Earnings ESP of +0.48% and a Zacks Rank #1.

Cirrus Logic Inc. (CRUS), with Earnings ESP of +4.41% and a Zacks Rank #1.

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