Q3 Preview: AMD (AMD) Cuts Targets Early, But Analysts Remain Cautious Looking Ahead

Shares of Advanced Micro Devices, Inc. (NYSE: AMD) are trading strong Thursday afternoon ahead of third-quarter results, expected out after the market close.

The Street expects AMD to report earnings of 10 cents per share on revenue of $1.65 billion. AMD reported earnings of 9 cents per share last quarter and 14 cents per share in the same period last year. AMD beat estimates by an average of 31.5 percent over the last four quarters, suggesting possible earnings of 14 cents per share this quarter.

Shares dropped 27 percent through the quarter to $5.08 at the end of September. Shares are up 5.1 percent since, but off 35 percent on the year. AMD has traded within a range of $4.31 to $9.58 over the last 52-week time frame.

AMD is trading with a forward P/E of 9.3x, compared with 13.2x for NVIDIA (Nasdaq: NVDA), 9.8x for Intel (Nasdaq: INTC), and 13.2x for Texas Instruments (NYSE: TXN).

Data from Bloomberg shows 10 analysts with a Buy on the stock, 18 at Hold, and six suggesting to Sell. The price target average is $6.80, with a low of $4 and high of $13.

Notably, AMD reduced it's outlook for the third quarter at the end of September. AMD cut its sales growth outlook from 8 to 12 percent to a range of 4 to 6 percent. Gross margin was also lowered from 47 percent to a range of 44 to 45 percent.

Analyst Comments

• Wedbush is looking for earnings of 10 cents per share in the quarter on revenue of $1.645 billion. Looking ahead, Wedbush sees continued pressure from 32mm yields: "We believe low yields and the uncertain macro will pressure Q4 guidance to be below the Street ($0.15/$1.71B) and our estimates ($0.13/$1.69B)." Webush is currently modeling for fourth-quarter earnings of 12 cents per share on revenue of $1.649 billion.
  
  
• Deutsche Bank concurs for the most part, seeing earnings of 10 cents per share and revenue of $1.65 billion. The firms is also modeling for gross margins of 44 percent.
  
  Looking ahead, Deutsche sees fourth-quarter revenue of $1.7 billion and earnings of 14 cents per share, more robust than what Wedbush is predicting. Risks to the outlook include softer PC demand in mature markets as well as market share loss. Deutsche commented, "We see little upside potential in the GPU business in the absence of new product launches and/or share gains. Any continued manufacturing issues would represent additional headwinds to our 4Q estimates."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out AMD's past performance at Streetinsider's AMD Income Statement.

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