North America

Earnings Preview: Intel Corp. Q3 2017 (INTC)

By: Craig Bowles

Overview

Intel, Corp. (INTC) is slated to report 3Q 2017 earnings after the bell on Thursday, October 26th. 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).

Outliers & Strategy

Key measures:

  • Non- GAAP Earnings Per Share (EPS): Company guidance is $0.75 to $0.85. The consensus estimate is $0.80. (Source: Yahoo! Finance) Intel typically reported a “clean” number that was comparable to consensus before 2016. Consensus was $0.80 three months ago, as well.
  • Revenues: Company guidance is $15.2 bln to 16.2 bln. Analyst consensus expectations are for $15.73 bln. Consensus was $15.32 bln three months ago.
  • Gross Margin: Company guidance is Non- GAAP 61% to 65%.
  • Adjusted Earnings Per Share (EPS) Guidance (4Q 2017): Analyst estimates are for $0.83 (range $0.80 to $0.87.
  • Revenue Guidance (4Q 2017): Analyst estimates are for $16.11 bln (range $15.95 bln to $16.50 bln).
  • Gross Margin Guidance (4Q 2017): Anything in the 61% to 65% range would be in keeping with 2017 expectations.
  • Adjusted Earnings Per Share (EPS) Guidance (FY 2017): Company guidance is $2.85 to $3.15. Analyst consensus is for $3.01.
  • Revenue Guidance (FY 2017): Company guidance is $60.8 bln to $61.8 bln. Analyst consensus is for $61.39 bln.
  • Gross Margin Guidance (FY 2017): Company guidance is Non- GAAP 61% to 65%.
  • Intel shares are yielding 2.7% compared to the 5-year average of 3.2%. Price/Earnings 15.4 compares to a 5-year average of 13.4; Price/Book of 2.8 compares to a 5-year average of 2.5; Price/Revenue of 3.2 compares to a 5-year average of 2.7; Price/Cash Flow of 8.7 compares to a 5-year average of 8.0.
  • Analysts view Intel with 22 Buy, 13 Hold, and 4 Sell ratings. (source: MarketBeat.com)
  • Insiders have sold 190,873 shares over the last three months and 1,458,622 shares in the past year. (source: NASDAQ.com) Intel approved $10 billion additional stock buybacks in April 2017 which brought the total available to $15 billion.
  • Intel quarterly results could impact other semiconductor stocks: Advanced Micro Devices (AMD), Texas Instruments (TXN), STMicroelectronics (STM), Nvidia Corp. (NVDA), Qualcomm (QCOM), and Applied Materials (AMAT).
  • Intel has 1-day average price change on earnings of 3.51%. Options are pricing in an implied move of 3.95% off earnings.

Recent News

  • 10/10: Susquehanna has a Positive rating on Intel despite a risk that recent outperformance already embeds much of the upside. Better-than-expected trends in notebook computer shipments, and rising PC prices, should help Intel to beat the Street’s third-quarter expectations, according to a post by Barron’s.com.
  • 10/06: Intel closed its Recon brand of augmented-reality goggles for sporting and industrial applications, according to a post on Bloomberg.com.
  • 09/26: Tesla Inc. replaced chip supplier Nvidia Corp with Intel Corp. to power the giant information and entertainment screens, according to a post on Bloomberg.com.
  • 09/06: The European Court of Justice made a ruling in Intel’s legal battle with Europe’s antitrust watchdogs over chip pricing. The ECJ determined that the lower court did not give sufficient airing to Intel’s arguments that the rebates it gave to customers who bought its chips did not actually harm competition, according to a post on Bloomberg.com.
  • 08/15: Bernstein reiterated an Underperform rating on Intel citing multiple concerns including the company “over-shipping” the PC market and showing underwhelming results in its data center group, according to a post by Barron’s.com.

Summary

Intel’s stock broke out to the upside in September and October after having missed out of the general market strength since November. While business appears to be promising for Q3 results, investors have to remember that the company under attack by European politicians similar to Apple, Alphabet, and Amazon. Analyst bullishness remains solid. Insider selling remains restrained. Intel’s addition of $10 bln to their stock buyback program should continue to be helpful in limiting any downside. The company has beaten earnings estimates by an average of 4c the last four quarters. Estimize consensus for Non-GAAP EPS of $0.81 on revenue of $15.764 bln compares to analyst consensus of $0.80 on revenue of $15.73 bln. Varied market reactions show the importance of underlying measures and guidance.

 

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