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What's in Store for Advanced Micro (AMD) in Q3 Earnings?

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Advanced Micro Devices, Inc. (AMD - Free Report) is set to report third-quarter 2016 results on Oct 20, after the market closes. Last quarter, the company posted a positive earnings surprise of 36.36%. However, over the past four quarters, the company has posted an average negative earnings surprise of 3.83%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Advanced Micro reported decent second-quarter results with both the top and the bottom lines exceeding the Zacks Consensus Estimate. During the quarter, the company closed its ATMP joint venture transaction with Nantong Fujitsu Microelectronics. The deal helped Advanced Micro to bolster its cash position.

Advanced Micro is strengthening its position in key markets with the introduction of several Accelerated Processing Units and Graphics Processing Units. Its Radeon Technologies Group focuses on the graphics business and on improving its performance in traditional graphics markets. The company is taking initiatives in immersive computing markets like virtual and augmented reality.

For the third quarter, management expects revenues to increase 18% sequentially (+/- 3%) driven by strong demand for Semi-Custom and Graphics products. The Zacks Consensus Estimate is currently pegged at $1.21 billion.

Non-GAAP gross margin is likely to be 31%. Non-GAAP operating expenses are projected at approximately $350.0 million due to an increase in R&D investments. IP monetization licensing gain is expected to be approximately $22 million. Non-GAAP interest expense taxes and other are projected at approximately $45 million.

Earnings Whispers

Our proven model does not conclusively show that Advanced Micro will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of a penny. Hence, the difference is 0.00%.

Zacks Rank: Advanced Micro has a Zacks Rank #2. Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

ADV MICRO DEV Price and EPS Surprise

ADV MICRO DEV Price and EPS Surprise | ADV MICRO DEV Quote

Stocks to Consider

You could consider the following stocks with a positive Earnings ESP and a favorable Zacks Rank:

Asure Software, Inc. (ASUR - Free Report) , with an Earnings ESP of +14.29% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Barracuda Networks, Inc. , with an Earnings ESP of +25.00% and Zacks Rank #1.

NetApp, Inc. (NTAP - Free Report) , with an Earnings ESP of +2.63% and a Zacks Rank #1.

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