Semiconductor giant Intel Corporation (INTC) will join the earnings parade this week, offering up its fourth-quarter results after the close of trading tomorrow afternoon.
Entering 2014, INTC stock was an excellent value play, but with the shares up more than 40% year-over-year, Intel will have to provide solid guidance in order to retain investor enthusiasm.
Diving into the numbers, Intel is expected to post a profit of 66 cents per share; 30% higher than year-ago results. Revenue, meanwhile, is seen rising 6% to $14.72 billion.
Analysts see PC revenue dipping slightly despite unexpectedly strong sales volume, while mobile losses are expected to narrow. Data center revenue, meanwhile, is forecast to have risen 15%.
Given INTC stock’s strong price action, these fundamentals appear to be already priced into the shares. The real test for Intel will be guidance for fiscal 2015, where the company is expected to deliver revenue of $58.2 billion.
Speaking of expectations, EarningsWhisper.com reports a bit of optimism for Intel heading into tomorrow’s report. Currently, the whisper number for Intel’s fourth-quarter figure arrives at 67 cents per share — a penny better than the consensus.
But the optimistic sentiment ends there. The brokerage community as a whole is expressing doubts regarding INTC stock. For instance, Thomson/First Call data reveals that only 19 of the 46 analysts following INTC rate the shares a “buy” or better, compared to 20 “holds” and seven “sell” ratings.
Additionally, the 12-month consensus price target of $36.85 rests just pennies above INTC’s current perch at $36.50.
Clearly there is room for upgrades and price-target increases, but Intel may have to post a blow-out fourth quarter or boost guidance in order to budge current analysts positions — especially given the stock’s run in 2014.
Options traders are also taking a bearish stance on INTC stock. The January/February put/call open interest ratio for the shares currently rests at 1.52, with puts outnumbering calls among near-term options. Furthermore, this short-term ratio is at its highest level of the past year, meaning that options traders have not held more put contracts relative to call contracts at any point in the past 52 weeks.
Click to EnlargeOverall, January implieds are pricing in a potential post earnings move of about 4.8% for INTC stock. This places the upper bound at $38.26, while the lower bound lies at $34.74.
A breakout rally would be huge for INTC, as it could put the shares in territory not seen since January 2002. But this would mean toppling stiff resistance at the $38 level.
A decline, meanwhile, wouldn’t be quite that damaging, leaving the stock north of support at the $34 level, though follow-through selling pressure could see the stock eventually test its 200-day trendline in the $32 region if things get ugly.
Barring a major fourth-quarter earnings beat or a meaningful increase in guidance, the stock’s short-term reaction should be rather muted. In other words, call spreads or put sells offer the best possible returns for traders looking to get in ahead of tomorrow’s report.
2 Trades for INTC Stock
Bull Call Spread: Those traders looking to take a chance on an INTC rally might want to consider a Feb $36/$37 bull call spread. At the close of trading on Tuesday, this spread was offered at 40 cents, or $40 per pair of contracts. Breakeven lies at $36.40, while a maximum profit of 60 cents, or $60 per pair of contracts, is possible if INTC stock closes at or above $37 when Feb. options expire.
Put Sell: Alternately, if you’re not comfortable with a bullish INTC trade, you could look into a put sell position. For instance, a Feb $32 put sell stands a good chance of finishing out of the money when these options expire next month. After the close last night, the Feb $32 put was bid at 25 cents, or $25 per contract. On the upside, you keep this premium as long as INTC stock closes above $32 when Feb. options expire. On the downside, should INTC trade below $32 ahead of expiration, you could be assigned 100 shares for each Feb $32 put sold at a cost of $32 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
