Offshore

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<a href="https://t.me/iv?url=https%3A%2F%2Fr.tfrbot.com%2Fapi%2Freadability%3Furl%3Dhttps%253a%252f%252ftwitter.com%252fDimitryNakhla%252fstatus%252f1870574345174790287&rhash=cc31aa64cf012a">⁠</a><b>Dimitry Nakhla | Babylon Capital®</b>
Now that $AMD reached my $120💵 target, here are the updated CAGR Estimates:

23x P/E: $162.15💵 … ~16.4% CAGR

22x P/E: $155.10💵 … ~13.8% CAGR

21x P/E: $148.05💵 … ~11.3% CAGR

20x P/E: $141.00💵 … ~8.6% CAGR

19x P/E: $133.95💵 … ~5.9% CAGR

*Assuming 2026 EPS of $7.05
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Check out the photo below, you'll notice that $AMD tends to bottom near 25x - 26x earnings. Interestingly, it’s trading at that level today

Of course in rare circumstances, such as the prolonged bear market in 2022, $AMD can trade at much lower multiples

However, it’s encouraging to see $AMD trade near what I call a “Fundamental Bottom” and it’s certainly peaking my interest today at $120💵 (along with $ASML $LRCX & $AMAT)<code>

A quality valuation analysis on $AMD 🧘🏽‍♂️

•NTM P/E Ratio: 30.59x
•3-Year Mean: 32.10x

•NTM FCF Yield: 2.97%
•3-Year Mean: 3.10%

As you can see, $AMD appears to be trading near fair value

Going forward, investors can receive ~5% MORE in earnings per share & ~4% LESS in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $AMD is a good business

BALANCE SHEET✅
•Cash & Short-Term Inv: $4.54B
•Long-Term Debt: $1.72B

$AMD has an excellent balance sheet, an A- S&P Credit Rating, & 21x FFO Interest Coverage

RETURN ON CAPITAL✅➡️❌
•2019: 17.9%
•2020: 21.5%
•2021: 44.7%
•2022: 2.1%
•2023: 0.7%
•LTM: 2.3%

RETURN ON EQUITY✅➡️❌*
•2019: 16.7%
•2020: 57.5%
•2021: 47.4%
•2022: 4.2%
•2023: 1.5%
•LTM: 3.3%

$AMD has strong return metrics, highlighting the financial efficiency of the business

*the notable drop in ROIC can be attributed to Xilinx acquisition in 2022, increased expenses and investments, among other things

REVENUES✅
•2018: $6.48B
•2023: $22.68B
•CAGR: 28.47%

FREE CASH FLOW❌➡️✅
•2018: ($0.13B)
•2023: $1.12B

*2024E FCF is $3.68B 📈

NORMALIZED EPS✅
•2018: $0.46
•2023: $2.65
•CAGR: 41.93%

SHARE BUYBACKS❌
•2018 Shares Outstanding: 1.06B
•LTM Shares Outstanding: 1.64B

By increasing its shares outstanding by 54%, $AMD decreased its EPS by 35% (assuming 0 growth)

MARGINS🆗
•LTM Gross Margins: 52.1%
•LTM Operating Margins: 5.6%
•LTM Net Income Margins: 7.5%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~5% MORE in EPS & ~4% LESS in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $AMD has to grow earnings at a 15.30% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be greater than the (15.30%) required growth rate:

2024E: $3.32 (25.5% YoY) *FY Dec

2025E: $5.11 (53.8% YoY)
2026E: $7.10 (38.9% YoY)
2027E*: $9.11 (28.2% YoY)

$AMD has a mediocre track record of meeting analyst estimates ~2 years out, so let’s assume $AMD ends 2027 with $8.20* in EPS (10% below estimates) & see its CAGR potential assuming different multiples

26x P/E: $213.20💵 … ~15.0% CAGR

24x P/E: $196.80💵 … ~12.1% CAGR

22x P/E: $180.40💵 … ~8.9% CAGR

20x P/E: $164.00💵 … ~5.7% CAGR

As you can see, $AMD appears to have attractive return potential if we assume >24x earnings & aggressive return potential if we assume >26x earnings

Assuming 24x is very reasonable given $AMD growth rate — however this is a high degree of uncertainty when it comes to $AMD multi-year projections (for better or for worse)

Today at $138💵 $AMD still appears to be a decent consideration for investment

To account for the high uncertainty and aggressive growth projections, I would require a more substantial margin of safety

I’d consider $AMD a strong consideration closer to $120💵 (~13.5% below today’s price) or at ~26.50x NTM estimates, where I can expect ~14% CAGR assuming 22x

#stocks #investing
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