Investors got an unexpected gift from Intel Corporation (NASDAQ:INTC) when it lifted its revenue forecast, which sent Intel stock to a 15-year high.
This is not something anyone holding INTC is used to. After all, the chipmaker hasn’t hiked a quarterly forecasts in more than two years.
The reasons for the improved outlook were also a nice break from the norm. PC sales were not as bad as INTC expected.
A 15-year high for Intel stock is kind of remarkable considering how much trouble it faces, at least on a strategic basis. It was already stressed by a world that’s ditching PCs for mobile devices. That there’s no question that desktop computers are in secular decline should have been enough. Now it has to compete in the cloud business as well.
INTC is making every effort to pivot away from the PC supply chain toward more relevant markets. But it’s like turning a cruise liner in choppy seas. As a result, the market’s faith in Intel stock ebbs and flows. It’s been essentially range-bound for two years.
Perhaps this latest bit of good news can serve as the catalyst that fuels a breakout. As under-confident as the market may be on Intel stock, shares are now up 9% after Friday’s pop. That beats the S&P 500 — which it has trailed all year long — by about 5 percentage points.
INTC’s Revised Outlook Is Not a Complete Surprise
That’s not bad at all as long as the market doesn’t get carried away with this change in guidance. Intel said at the end of the second quarter that it saw improvement in the PC business. Market researchers also seeing better-than-expected shipments of PCs in Q2. Theoretically, at least, some of today’s move should have already been priced into Intel stock.
Still, there’s nothing quite like putting it on the board. The company now sees Q3 revenue in a range of $15.3 billion to $15.9 billion. The prior forecast stood at $14.4 billion to $15.4 billion. Analysts on average were looking for the top line to hit $14.9 billion, according to a poll by Thomson Reuters. It looks like Intel dispensed with any downside risk to sales when it reports next month.
That’s worth something but be careful of getting too high on the news. Intel said its improved prospects are partially due to the need to replenish inventory in the PC supply chain. That’s a cyclical phenomenon.
As much as INTC wants to become less reliant on PCs, it still still derives the majority of its revenue from that business. Intel stock certainly deserves a higher premium from higher guidance, but the mid-day gain of 2.5% may be all it warrants. It’s also important to keep in mind that Intel didn’t touch its earnings forecast despite the improved outlook for revenue.
INTC is a blue-chip stock with a decent dividend when investors are strapped for yield. It isn’t particularly expensive either. However, today’s move is probably sufficient to price in the update.
It will have to follow up today’s news with something even better when it drops quarterly earnings in October.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
