Advanced Micro Devices, Inc. (NASDAQ:AMD), one of last year’s biggest tech winners, is set to take the earnings stage in about two weeks. The company has received accolades for its inclusion in the Sony Corp (ADR) (NYSE:SNE) PlayStation 4 and the Microsoft Corporation (NASDAQ:MSFT) XBox One consoles, as well as its moves into the VR and Internet of Things (IoT) markets.
But can AMD keep the ball rolling heading into 2017?
Coming off a more than 300% gain in 2016, AMD stock has seen bullish sentiment swell to levels not seen since 2005. Advanced Micro Devices’ lock on the current-generation console market has been a major contributor to this success, but its success in PC graphics cards for gaming has also provided substantial support.
But it’s the VR and IoT markets that have prompted many analysts to upgrade AMD stock into “buy” and “strong buy” territory. With those markets still in their infancy, guidance will be key when AMD steps into the earnings confessional on Jan. 31.
Advanced Micro Devices vs. Analysts
The fact is, AMD is, in all likelihood, going to report a loss for the fourth quarter. The current consensus target for fourth-quarter earnings rests at a loss of 2 cents per share.
That said, the results should be considerably narrower than last year’s loss of 10 cents per share. Revenue, meanwhile is seen rising 11.9% to $1.07 billion.
But enthusiasm surrounding the stock has pushed earnings expectations much higher. EarningsWhispers.com, for example, reports a whisper number of breakeven for AMD’s fourth-quarter report, and some analysts are even calling for a profit on the quarter.
Hitting the whisper number would be a major coup for AMD bulls, while a profit on the quarter could send the stock soaring by validating the current bullish atmosphere surrounding the shares.
Taking a closer look at Wall Street’s expectations, we find that Zacks data reports 10 buys, 10 holds and no sells for AMD stock. The 12-month consensus price target, meanwhile, rests at $8.97, a discount to AMD’s close at $10.58 on Friday. Once again, guidance could make or break the sentiment backdrop for the shares, as there is room for both upgrades and downgrades depending on the results.
But there are signs of pessimism in AMD stock’s sentiment backdrop. For instance, short sellers increased their holdings by 5% during the most recent reporting period. Currently, some 86.6 million shares of AMD stock are now sold short, representing roughly 11% of the stock’s total float.
Click to Enlarge But short sellers don’t appear to be taking AMD’s quarterly report lightly. Calls have been quite popular during the past couple of weeks, and it seems natural that some of these short sellers are hedging their positions. The most recent Feb. put/call open interest ratio arrives at 0.60, down considerably from its December highs. Meanwhile, the 3 Feb. put/call OI ratio arrives at 0.36, with calls nearly tripling puts among options most affected by AMD’s Jan. 31 earnings report.
With 3 Feb. implieds pricing in a move of more than 15.7% for AMD stock, the upper bound lies near $12.15, while the lower bound rests near $8.85. AMD’s 10-day and 20-day trendlines lie just overhead in the $11 region, while $12 could be a major hurdle for the shares. Meanwhile, support should arise near $10, and below that at $9.50, which is home to the stock’s 50-day moving average.
2 Trades for AMD Stock
Call Spread: Those traders looking for a strong report from AMD might want to consider a Feb. $11/$12 bull call spread. At last check, this spread was offered at 31 cents, or $31 per pair of contracts. Breakeven rests at $11.31, while a maximum profit of 69 cents, or $69 per pair of contracts, is possible if AMD stock closes at or above $12 when February options expire.
Put Sell: Alternately, if you’re not sold on AMD stock’s upside potential, a 3 Feb. $9 put sell has a high probability of finishing out of the money. At last check, this option was bid at 25 cents, or $25 per contract. As usual with a put sell, you keep the premium as long as AMD stock closes above $9 when 3 Feb. options expire.
On the downside, if AMD trades below $9 prior to expiration, you could be assigned 100 shares for each put sold at a cost of $9 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.