Stock Market News – Intel’s earnings: is an upside surprise on the cards?
January 23, 2019 12:26 pm
Intel will report its earnings for the latest quarter on Thursday, after the US market close. Given that demand has been rising so fast the company has been unable to meet all of it, risks seem tilted towards a beat in earnings and revenues, as opposed to a disappointment. That said, besides the earnings figures, the guidance by management for 2019 will also be critical for the stock’s reaction, and perhaps even for broader market sentiment.
The California-based semiconductor giant is anticipated to report earnings per share (EPS) of $1.22 in Q4 2018 according to Thomson Reuters consensus estimates, ranging from $1.21 for the most pessimistic analyst to $1.27 for the most optimistic one. The mean earnings estimate has been unchanged in the last three months, and if it indeed meets expectations, that would represent a surge of 13.3% from the same quarter in 2017. On the revenue side, the processor-maker is forecast to have made $19bn in sales, an increase of 11.5% from 2017’s corresponding quarter.
Beyond any surprises in these numbers, the other key variable that will likely dictate sentiment around Intel stock is the guidance by management during the subsequent conference call with analysts. Specifically, this will be the first time the executives will discuss the outlook for 2019, and their expectations could be crucial.
Of particular interest will be any comments on supply shortages. In last quarter’s conference call, interim CEO Bob Swan indicated that capacity constraints meant Intel would likely be unable to meet all the demand for its products in Q4, as demand had been rising much faster than the company had anticipated. While this is encouraging on the one hand, as it implies the firm will most probably meet its own targets for the quarter and hence suggests a positive surprise in earnings is more likely than a disappointment, it also poses the risk that competitors like AMD could establish a stronger foothold in the market. Investors will be keen to hear when such constraints are projected to be resolved, and how much this additional capital investment is expected to cost.
Another key issue will be any updates around a new CEO. As mentioned, Swan has been “interim” CEO for seven months now while the company’s board has been looking for a suitable candidate. Given that the semiconductor industry requires long-term strategic decisions, the prolonged absence of a permanent leader is seen as worrisome, and hence the selection of one could allay some concerns around the firm’s future.
As for the market reaction, better-than-expected results and/or strong guidance by management could fuel another round of buying for Intel’s stock. Immediate resistance to advances may met near the 200-day simple moving average (SMA), currently at $49.4, with an upside break opening the way for a test of $50.5 – the December 3 peak. Even higher, the bulls could stall around the $53.3 zone, marked by the July top.
On the flipside, disappointing earnings relative to consensus or downbeat commentary by executives may be met with selling interest, with initial support to declines likely to come near the 50-day SMA at $47.5. A downside violation could the bears challenge the January 3 lows at $44.4, with even steeper declines eyeing the $43.5 area.
In terms of valuation, Intel is especially interesting – and looks somewhat undervalued. Let’s look at a simple valuation metric, the 12-month forward price-to-earnings ratio (P/E). This ratio denotes the dollar amount someone would need to invest in order to receive back one dollar in annual earnings and hence, the lower it is, the “cheaper” a stock is considered to be. Intel’s stands at a mere 10.6. For comparison, the average for the semiconductor sector is 11.7, while the average for the entire S&P 500 index rests at 15.3. Hence, Intel looks relatively inexpensive, especially when one accounts for the strong prospects the firm has, given its involvement in rapidly-growing industries such as artificial intelligence, self-driving vehicles, and 5G networks among others.
Year-to-date so far in January, Intel’s stock is trading up by 2.86%, underperforming the S&P 500 (+5%), the Dow Jones (+4.6%), as well as the Nasdaq 100 (+5%). Intel is a constituent stock in all three of these indices.
Finally, besides impacting its own stock, Intel’s earnings and the management’s tone could also be important for broader market sentiment. Namely, Intel is seen as somewhat of a bellwether for the semiconductor complex and the tech space in general. Thus, against the backdrop of mounting worries around a global economic slowdown, investors may look to earnings by firms like Intel to get an early snapshot of how consumption is holding up.
Intel will report its earnings for the latest quarter on Thursday, after the US market close. Given that demand has been rising so fast the company has been unable to meet all of it, risks seem tilted towards a beat in earnings and revenues, as opposed to a disappointment. That said, besides the earnings figures, the guidance by management for 2019 will also be critical for the stock’s reaction, and perhaps even for broader market sentiment.
The California-based semiconductor giant is anticipated to report earnings per share (EPS) of $1.22 in Q4 2018 according to Thomson Reuters consensus estimates, ranging from $1.21 for the most pessimistic analyst to $1.27 for the most optimistic one. The mean earnings estimate has been unchanged in the last three months, and if it indeed meets expectations, that would represent a surge of 13.3% from the same quarter in 2017. On the revenue side, the processor-maker is forecast to have made $19bn in sales, an increase of 11.5% from 2017’s corresponding quarter.
Beyond any surprises in these numbers, the other key variable that will likely dictate sentiment around Intel stock is the guidance by management during the subsequent conference call with analysts. Specifically, this will be the first time the executives will discuss the outlook for 2019, and their expectations could be crucial.
Of particular interest will be any comments on supply shortages. In last quarter’s conference call, interim CEO Bob Swan indicated that capacity constraints meant Intel would likely be unable to meet all the demand for its products in Q4, as demand had been rising much faster than the company had anticipated. While this is encouraging on the one hand, as it implies the firm will most probably meet its own targets for the quarter and hence suggests a positive surprise in earnings is more likely than a disappointment, it also poses the risk that competitors like AMD could establish a stronger foothold in the market. Investors will be keen to hear when such constraints are projected to be resolved, and how much this additional capital investment is expected to cost.
Another key issue will be any updates around a new CEO. As mentioned, Swan has been “interim” CEO for seven months now while the company’s board has been looking for a suitable candidate. Given that the semiconductor industry requires long-term strategic decisions, the prolonged absence of a permanent leader is seen as worrisome, and hence the selection of one could allay some concerns around the firm’s future.
As for the market reaction, better-than-expected results and/or strong guidance by management could fuel another round of buying for Intel’s stock. Immediate resistance to advances may met near the 200-day simple moving average (SMA), currently at $49.4, with an upside break opening the way for a test of $50.5 – the December 3 peak. Even higher, the bulls could stall around the $53.3 zone, marked by the July top.
On the flipside, disappointing earnings relative to consensus or downbeat commentary by executives may be met with selling interest, with initial support to declines likely to come near the 50-day SMA at $47.5. A downside violation could the bears challenge the January 3 lows at $44.4, with even steeper declines eyeing the $43.5 area.
In terms of valuation, Intel is especially interesting – and looks somewhat undervalued. Let’s look at a simple valuation metric, the 12-month forward price-to-earnings ratio (P/E). This ratio denotes the dollar amount someone would need to invest in order to receive back one dollar in annual earnings and hence, the lower it is, the “cheaper” a stock is considered to be. Intel’s stands at a mere 10.6. For comparison, the average for the semiconductor sector is 11.7, while the average for the entire S&P 500 index rests at 15.3. Hence, Intel looks relatively inexpensive, especially when one accounts for the strong prospects the firm has, given its involvement in rapidly-growing industries such as artificial intelligence, self-driving vehicles, and 5G networks among others.
Year-to-date so far in January, Intel’s stock is trading up by 2.86%, underperforming the S&P 500 (+5%), the Dow Jones (+4.6%), as well as the Nasdaq 100 (+5%). Intel is a constituent stock in all three of these indices.
Finally, besides impacting its own stock, Intel’s earnings and the management’s tone could also be important for broader market sentiment. Namely, Intel is seen as somewhat of a bellwether for the semiconductor complex and the tech space in general. Thus, against the backdrop of mounting worries around a global economic slowdown, investors may look to earnings by firms like Intel to get an early snapshot of how consumption is holding up.
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