Advanced Micro Devices (AMD) hasn’t had a great year, with shares falling 16% since the start of 2021. Should investors be worried about this underwhelming showing? Not according to the semiconductor giant. In fact, going by the company’s latest actions, quite the opposite.
On Wednesday, AMD announced an unprecedented share-repurchase program. Over an unspecified period, the company will buy back $4 billion’s worth of stock – funded in its entirety by cash generated from operations.
And the company is sitting on plenty of it by now. The company saw out 2020 with $2.29 billion of cash in the coffers and short-term investments, the most it has had since 2009.
What’s more, AMD generated free cash flow (FCF) of $777 million in 2020, far above the $276 million the company produced in 2019. Prior to that, since 2011, the company hadn’t reported positive cash flow for a fiscal year.
Looking ahead, Deutsche Bank’s Ross Seymore excepts AMD to generate ~$3-3.5 billion in annual FCF from 2021 to 2023. Over that 3yr period, the $4 billion repurchase plan should represent ~40% of FCF. Seymore also notes that this first large return of cash to shareholders indicates AMD’s “confidence in its ability to continue generating solid free cash flow (FCF) for the foreseeable future.”
“Overall,” the 5-star analyst further said, “We expect the market to view this share repurchase announcement favorably as it illustrates AMD’s confidence in its future prospects despite recently rising investor concerns regarding intensifying competition.”
Mirroring AMD’s confidence, Wells Fargo’s Aaron Rakers thinks the aforementioned intensifying competition is less of a concern to AMD and believes the announcement “likely reflects AMD’s confidence on executing on its technology roadmap, as well as it maintains/improves its competitive positioning vs. Intel.”
What does the rest of the Street make of AMD’s prospects? The ratings are a mixed bag, tilting in the bulls’ favor. Based on 9 Buys vs. 7 Holds and 1 Sell, the stock has a Moderate Buy consensus rating. The average price target is more conclusive; at $106.14, the shares are anticipated to appreciate by 37% over the coming months. (See AMD stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
