Investors love a bit of share buyback action, and Advanced Micro Devices (AMD) has been partaking in plenty of it recently.
Last week, the chip giant disclosed it had authorized a new $8 billion share repurchase program which comes hot on the heels of last May’s $4 billion authorization – for which the company has already purchased $3 billion worth of shares over the last 4 quarters.
“Overall,” said Deutsche Bank’s Ross Seymore, “We believe the expansion of AMD's share repurchase program reflects the company’s continued confidence in its cash generation capabilities and commitment to shareholder returns while still investing for strong revenue growth.”
More than that, however, Seymore thinks the repurchase program is timed to coincide with the Xilinx acquisition. Given the all-stock deal structure, the share count is expected to increase by around 35%, so taking a chunk of shares off the market will help “offset the significant share count dilution.”
It will also help make the EPS accretion the company guided for in the first year of the deal more palatable to Seymore; he had previously thought it was a bit of reach. “The addition of this large buyback program brings us closer to EPS neutrality (albeit still slightly dilutive),” said the analyst. Ultimately, Seymore has reduced the EPS forecast for 2022 from $4.15 to $4.05.
That said, Seymore also notes that should either company’s fundamentals improve, or if cost synergies “come in higher” than the original $300 million guidance, there could be “room for upside” to that figure.
The 5-star analyst summed up, “We look forward to seeing realization of the benefits of this transaction over time (AMD penetration into new markets, incremental opportunities for revenue/cost synergies, etc.) with more detail likely to come on the company's 1Q22 earnings call as well as its June Analyst Day.”
For now, Seymore stays on the sidelines with a Hold rating, while his $140 price target suggests room for 13.5% growth over the coming year. (To watch Seymore’s track record, click here)
7 of Seymore’s colleagues join him on the sidelines but with 15 other Buys, the analyst consensus rates this stock a Moderate Buy. The average target stands at $154.28, implying one-year share gains of ~25%. (See AMD stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.