North America

Earnings Preview: Intel Corp Q2 2016 (INTC)

By: Craig Bowles

Overview

Intel, Corp. (INTC) is slated to report 2Q 2016 earnings after the bell on Wednesday, July 20th. The earnings release is expected at approximately 4:00 p.m. ET with a webcast conference call to follow at 5:30 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 $0.53 (range $0.46 to $0.60). (Source: Yahoo! Finance) Intel typically provides a “clean” number that is comparable to consensus but will otherwise publish a non-GAAP if need be as they did last quarter. Consensus was $0.55 three months ago.
  • Revenues: Company guidance range is $13.0 bln to 14.0 bln. Analyst consensus expectations are for $13.54 bln.
  • Gross Margin: Company guidance is Non- GAAP 59% to 63%.
  • Revenue Guidance (3Q 2016): Analyst estimates are for $14.62 bln (range $14.20 bln to $15.05 bln).
  • Gross Margin Guidance (3Q 2016): Anything in the 60% to 64% range would be in keeping with FY expectations.
  • Gross Margin Guidance (FY 2016): Company guidance is Non- GAAP 60% to 64% (reduced 1% last qtr).
  • Intel shares are yielding 2.9% compared to the 5-year average of 3.2%. Price/Earnings 15.0 compares to a 5-year average of 12.4; Price/Book of 2.7 compares to a 5-year average of 2.5; Price/Revenue of 3.0 compares to a 5-year average of 2.6; Price/Cash Flow of 9.2 compares to a 5-year average of 7.1.
  • Analysts view Intel with 30 Buy, 16 Hold, and 3 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 477,847 shares over the last three months and 1,896,944 shares in the past year. Insiders haven’t purchased a single share in more than one year. (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 3.80%. Options are pricing in an implied move of 3.77% off earnings.

Recent News

  • 07/13: Guggenheim Partners is unsurprised that Intel is considering selling the security unit McAfee. Intel phased out an email security offerings and dumped its firewall security business last year, according to a post by Fortune.com.
  • 07/11: Cowen & Co. reiterated a Market Perform rating on Intel, but raised earnings estimates citing that new checks show that Intel products will now be in in more than half of iPhone 7 units, according to a post by Barron’s.com.
  • 07/08: Bernstein upgraded Intel to Market Perform from Underperform saying Q2 won’t miss estimates and cited improving personal computer trends, and the company’s having new business from Apple (AAPL), according to a post by Barron’s.com.
  • 06/30: Citigroup believes Intel has won roughly 25% share of the iPhone 7 away from Qualcomm but won’t make any profit and is still worried about Intel’s data center business, and about inventory stockpiling, 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 this year was no exception. Point and figure technicians still have a bullish price objective of $52 with their uptrend line at $28. (Chart courtesy of StockCharts.com)

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Summary

The significance of personnel departures is being debated. Analyst bullishness remains solid as is insider selling. The company had beaten earnings estimates by an average of 7c the last four quarters with three of the quarters averaging a 5c beat. Varied market reactions, while mostly positive, show the importance of underlying measures and guidance. Estimize consensus for an EPS of $0.54 on revenue of $13.544 bln compares to analyst consensus of $0.53 on revenue of $13.54 bln.

 

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