AMD – CDS 59bps, Base Case iCDS 55bps, Negative Case iCDS 106bps, 2024 7.000% Bond YTW of 6.082%, iYTW of 2.222%, Ba2 Rating from Moody’s, IG3+ (equivalent to A1) Rating from Valens, Low Refinancing Need

• Credit markets are accurately stating CDS risk with a CDS of 59bps relative to an Intrinsic CDS of 55bps, while cash bond markets are grossly overstating credit risk with a YTW of 6.082%, relative to an Intrinsic YTW of 2.222%. Furthermore, Moody’s is materially overstating the firm’s fundamental credit risk, with their Ba2 credit rating seven notches lower than Valens IG3+ (A1) credit rating
• AMD’s compensation metrics should drive management to focus on improving all three value drivers: top-line growth, margins, and asset utilization, which would lead to Uniform ROA expansion and increased cash flows available to servicing debt obligations. Furthermore, most members of management hold material AMD equity relative to their annual compensation, aligning them with shareholders for long-term value creation.
• Earnings Call Forensics™ of the firm’s Q2 2019 earnings call (7/31) highlights that management is confident that operating expenses should be flat through the rest of 2019
• AMD currently trades above recent averages relative to UAFRS-based (Uniform) Earnings, with a 24.1x Uniform P/E. However, even at these levels, the market is pricing in expectations for Uniform ROA to decline from 21% in 2018 to 18% through 2023, accompanied by 11% Uniform Asset growth going forward