Advanced Micro Devices, Inc. (NASDAQ: AMD) is in the process of raising additional capital through equity and debt. That comes when AMD stock has soared more than 220% over the last one year. Some analysts have pointed out that the management of AMD is taking advantage of investor optimism in the stock to do a low-cost capital raise and they consider that a prudent move.
There is no doubt that Advanced Micro Devices, Inc. (NASDAQ: AMD)’s decision to issue new shares and convertible notes will dilute value for existing shareholders. That explains why the announcement of the capital raise plans immediately sparked a selloff in AMD stock. However, the selloff could be overdone considering that AMD is seeking additional capital for a course that would be beneficial in the long run.
What’s the money for?
AMD intends to use the funds generated from the issuance of equity and convertible debt to repay borrowing under its credit facility. The management further said that any cash that remains will be used to repurchase certain outstanding senior notes. Keep in mind that the balance sheet of AMD reflected total debt of $2.238 billion at the end of 2Q2016, indicating a slight increase from $2.236 billion in the prior quarter and a slight decrease from $2.269 billion in the year-ago quarter.
If AMD is fundraising to reduce its indebtedness, the move deserves applause because it should help the company strengthen its balance sheet and lower its interest expenses.
What’s on offer?
Advanced Micro Devices, Inc. (NASDAQ: AMD) is offering $600 million worth of common shares and $450 million worth of convertible notes that will mature in 10 years. The company is looking for net proceeds of $1.02 billion from the equity and debt fundraiser.
What’s Wall Street saying about Advanced Micro Devices, Inc. (NASDAQ: AMD)?
Analysts at MKM Partners have weighed in on Advanced Micro Devices, Inc. (NASDAQ: AMD)’s fundraiser and they believe it is a wise move and they believe the recent selloff in AMD stock provides a lower entry point for investors with long-term outlook. MKM maintains BUY rating with price target of $8 on the stock of AMD. They say that retiring the targeted senior notes and repayment of the credit facility will lower AMD’s quarterly interest expenses by about $15 million.