Nasdaq AMD

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.

Semiconductor company Advanced Micro Devices (AMD) announced a new share repurchase program of up to $4 billion worth of shares. Following the share buyback announcement, AMD shares rose 2.4% on May 19 to close at $76.23.

Advanced Micro intends to fund the buyback through cash generated from operations, the company said.

Under the program, the company will buy back shares in the open market. This repurchase program has no termination date.

Advanced Micro’s CEO Lisa Su said, “Today’s announcement reflects our confidence in AMD’s business and the successful execution of our multi-year growth strategy.”

She further added, “Our strong financial results and growing cash generation enable us to invest in the business and begin returning capital to our shareholders.” (See Advanced Micro stock analysis on TipRanks)

On April 28, Advanced Micro reported better-than-expected Q1 results. Adjusted earnings almost tripled to $0.52 per share on a year-over-year basis and came in well ahead of analysts’ expectations of $0.44 per share. Revenue surged 93% to $3.45 billion and surpassed the consensus estimate of $3.21 billion.

Following the earnings announcement, Northland Securities analyst Gus Richard assigned a Buy rating and a price target of $116 (52.2% upside potential).

Richard commented, “We believe AMD outperformance is drive by superior products built on a superior manufacturing process. We do not expect this advantage to diminish any time soon.”

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 9 Buys, 6 Holds, and 1 Sell. The average analyst price target of $106.14 implies 39.2% upside potential to current levels. Shares have increased 35.2% over the past one year.

AMD scores a 6 of 10 from TipRanks’ Smart Score rating system, indicating that the stock is likely to perform in line with market averages.

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