North America

Earnings Preview: Intel Corp Q1 2016 (INTC)

By: Craig Bowles

Overview

Intel, Corp. (INTC) is slated to report 1Q 2016 earnings after the bell on Tuesday, April 19th. The earnings release is expected at approximately 4:00 p.m. ET with a webcast conference call to follow at 5:00 p.m. accessible through Intel Investor Relations. A member of the Dow Jones Industrial Average, S&P 500, and NASDAQ 100, Intel has significant market influence and the potential to impact the broader market gauges. Other tech names are often impacted by the results, along with related ETFs such as the PowerShares (QQQ) & Market Vectors Semiconductor ETF (SMH).

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): The consensus estimate is $0.48. (Source: Yahoo! Finance) Intel typically provides a “clean” number that is comparable to consensus but will otherwise publish a non-GAAP if need be. Consensus was $0.50 three months ago.
  • Revenues: Company guidance range is $13.6 bln to 14.6 bln. Analyst consensus expectations are for $13.89 bln.
  • Gross Margin: Company guidance is GAAP 56% to 62% and Non- GAAP (ex-Altera acquisition adjustments) 60% to 64%.
  • Revenue Guidance (2Q 2016): Analyst estimates are for $14.22 bln (range $13.53 bln to $14.64 bln).
  • Gross Margin Guidance (2Q 2016): Last year increased slightly from Q1 suggesting GAAP 58.5% and Non-GAAP 62.5%.
  • Gross Margin Guidance (FY 2016): Company guidance is GAAP 59% to 63% and Non- GAAP 61% to 65%.
  • Intel shares are yielding 3.1% compared to the 5-year average of 3.2%. Price/Earnings 13.7 compares to a 5-year average of 12.4; Price/Book of 2.5 compares to a 5-year average of 2.5; Price/Revenue of 2.8 compares to a 5-year average of 2.6; Price/Cash Flow of 8.3 compares to a 5-year average of 7.1.
  • Analysts view Intel with 31 (up from 25 last qtr) Buy, 15 Hold, and 4 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 796,435 shares (up from 420,969 and 166,693 the previous two qtrs) over the last three months and 1,770,511 shares in the past year. Insiders haven’t purchased a single share in the past twelve months. (source: NASDAQ.com) In July 2014, Intel’s September 2014 buyback plan was $20 billion and is not expected to add to that in 2016 given the Altera purchase.
  • Intel is the first of the major semiconductor companies to report quarterly results and could impact Advanced Micro Devices (AMD), Texas Instruments (TXN), STMicroelectronics (STM), Qualcomm (QCOM), and Applied Materials (AMAT).
  • Intel has 1-day average price change on earnings of 3.71%. Options are pricing in an implied move of 3.77% off earnings.

Recent News

  • 04/13: Intel memo suggests a lack of product/customer focus in execution that is creating schedule and competitiveness gaps, according to a post by BusinessInsider.com.
  • 04/05: Credit Suisse reiterated a Buy rating on Intel citing the recent departures as unlikely to signal a significant shift in strategy. Bernstein Research has an Underperform rating on Intel and speculated the departures are directly tied to Renduchintala who came over from Qualcomm (QCOM), according to a post by Barron’s.com.
  • 04/05: BlueFin Research noted Intel’s chip production at the end of March began to pick up, according to a post by Barron’s.com.
  • 04/04: Sterne Agee CRT said departures may signify a new strategy or culture change, according to a post by Barron’s.com.

Technical Review

Intel shares rallied in 2014 to catch back up with the general bull market of the previous two years, but have found resistance at $36 since. Seasonally, the stock tends to do well in the spring and early summer, so time will tell if early improvement this year limits the upside duration. Point and figure technicians still have a bullish price objective of $55 with their uptrend line at $28. (Chart courtesy of StockCharts.com)

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Summary

The significance of personnel departures is being debated. Intel will revise the presentation of financial results to reflect changes to certain operating segments. Analyst bullishness has increased as has insider selling. The company had beaten earnings estimates by an average of 5c the last four quarters with the year-ago quarter in line. Varied market reactions, while positive, show the importance of underlying measures and guidance. Estimize consensus for an EPS of $0.52 on revenue of $14.076 bln compares to analyst consensus of $0.48 on revenue of $13.89 bln.

 

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