North America

Earnings Preview: Intel Q1 2015 (INTC)

By: Craig Bowles

Overview:

Intel, Corp. (INTC) is slated to report 1Q 2015 earnings after the bell on Tuesday, April 14th. The earnings release is expected at approximately 4:00 p.m. EST 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 current Street estimate is $0.41 (range $0.39 to $0.51). (Source: Yahoo! Finance)  Consensus was $0.51 three months ago. Intel typically provides a “clean” number that is comparable to consensus but will otherwise publish a non-GAAP if need be.
  • Revenues: Company guidance range was lowered to $12.5 bln to 13.1 bln (from $13.2 bln to 14.2 bln). Analysts expect an increase of 1.1% y/y to $12.90 bln  (range $12.80 bln to $14.02 bln).
  • Revenue Guidance (2Q 2015): Analyst estimates are for $13.50 bln (range $12.86 bln to $14.38 bln).
  • Gross Margin Guidance (2Q 2015): Analysts expect 60.7%.
  • Gross Margin Guidance (FY 2015): Company guidance is 60.0% to 64.0%, so 62% is the midpoint. Analysts expect 61.6%.
  • Intel shares are yielding 3.0%, so improved but still below the 5-year average of 3.3%. Intel still looks a little expensive relative to cash flow and revenue.
  • Analysts view Intel with 20 Buy, 17 Hold, and 6 Sell ratings. (source: Analystratings.net)
  • Insiders have sold 1,216,986 (up from 304,612) shares over the last three months and 3,452,512 shares in past year. There has been no buying in twelve months. (source: NASDAQ.com) In July, Intel added $20 billion to the stock buyback plan with $4 billion planned for the immediate quarter, so this dwarfed the previous plan. Repurchases picked after dropping off in 2012/13.
  • 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 3.75%. Options are pricing in an implied move of 6.15% off earnings.

Recent News

  • 03/30: Intel may spend $13 bln to purchase Altera (ALTR) which saw four downgrades after the story broke. Pacific Crest Securities said “we believe (the merger) would make strategic sense to Intel because it could provide diversification away from PCs (62% of sales) and expand Intel’s exposure in communications infrastructure and industrials, as well as augment Intel’s dominant position in data center,” according to a post on InvestorsDaily.com.
  • 03/13: Intel cuts Q1 revenue forecast citing lower-than-expected demand for business PCs and lower inventory levels across the PC supply chain. Canaccord Genuity upgraded shares to Buy from Hold with a target of $38, arguing “the removal of unrealistic PC expectations actually makes Intel shares more investible,” according to a post on Barron’s.com.

Technical Review

Intel rallied in the second half of 2014 to catch back up with the general bull market of the previous two years, so the easy money has been made. Seasonally, the stock tends to do well in the spring and early summer with limited downside until then.  October’s support was just above $30 and is being retested with the next support at $26. Resistance at $34 would give head-and-shoulders top worries if it were to hold. (Chart courtesy of StockCharts.com)

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Summary

Intel has beaten earnings estimates the last four quarters by 1-8c with mixed market reactions, so underlying measures and guidance is important. The company expects lower margins and EPS consensus has been reduced, so earnings probably need to come in closer to the guidance of three months ago or at $0.48 on revenue of $13.3 bln for an upside reaction. Solid Q2 guidance for revenue and margins are important for a favorable market reaction.

 

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