Intel Corporation (INTC) Q4 Earnings Preview

Semiconductor giant Intel Corporation (NASDAQ:INTC) is set to announce its fourth-quarter earnings results after the bell Thursday, Jan. 26. At 5 p.m., it will hold its conference call to provide details on sales, profit and cash flow trends to INTC stock holders and analysts.

Intel Corporation (INTC) Q4 Earnings Preview

Intel is the undisputed leader in semiconductors. By a fairly wide margin, it is the largest chip maker in the world. Its dominance came from rapid growth in personal computers in the 1990s, and it still controls the market; 8 out of 10 PCs are powered by Intel’s chips.

But as PC sales have slowed in recent years, Intel has had to reboot its growth strategy.

Thanks to its dominance, which results in billions of dollars of free cash flow annually and an unmatched R&D budget that is one of the largest of any company in the world, it has a firm plan in place. INTC stock holders are looking forward to hearing the current state of Intel’s business tomorrow.

Here are some details on what to expect.

Analyst Expectations for Intel Earnings

The 30 analysts covering Intel expect fourth-quarter earnings of 75 cents per share. The estimate has bounced within a penny of that figure over the past 90 days, so looks to have been relatively steady. That is also within a penny of the 74 cents that INTC posted in last year’s fourth quarter.

Back when it released third-quarter results in October, Intel provided Q4 estimates of its own. It said to expect quarterly sales of $15.7 billion, a gross margin of around 61% and a tax rate of 22%. Companies generally provide these estimates so analysts can build out their own financial projections, which in turn results in consensus estimates for investors to follow.

For the full year (so including the three quarters already reported and coming fourth-quarter earnings), 35 analysts have an estimate and expect EPS of $2.67. Again, that figure has been pretty steady over the past three months. Analysts collectively expect sales growth just north of 6% and total annual sales of $58.8 billion.

The Bigger Picture for INTC Stock

For decades now, Intel’s bread and butter has been selling semiconductors for personal computers and related devices. It literally dominates rivals such as Advanced Micro Devices, Inc. (NASDAQ:AMD) and boasts a total market share of 80%.

But of course, PCs aren’t growing like they used to, and Intel has been working hard to diversify into other lines of business.

In Intel’s corporate speak, it says its strategy is to use “core assets to move into profitable, complementary markets.” An important market is to get more chips into mobile devices such as tablets and mobile phones. Qualcomm, Inc. (NASDAQ:QCOM) currently dominates the smartphone chip market.

Chips that power data centers, which help store and retrieve digital information in the cloud, is another huge growth focus. This area has generally been called the internet of things.

These complementary markets now make up about 40% of total sales — up from closer to 25% just four years ago. Favorably, these new sales look to be more profitable. Intel estimates these segments reported a 65% operating margin last year. We’ll soon see how profitable they were for all of 2016.

Intel also is acquiring its way into new businesses. At the end of 2015, it bought archrival Altera for $16.7 billion to gain a stronger foothold in areas including chips that help clients speed up their web searches. Powering self-driving cars is another huge potential market that Intel thinks it can do better with Altera.

Autonomous car systems is a key reason that chip rival Nvidia Corporation (NASDAQ:NVDA) has been such a hot stock lately.

The Investment Appeal of Intel Stock

INTC stock is currently $38 per share. It is hovering toward its highs over the past 52 weeks, but is still reasonably valued. The stock’s forward P/E is 13.5, which compares quite favorably to Microsoft Corporation’s (NASDAQ:MSFT) forward multiple of 19.5.

I have argued recently that Microsoft’s valuation is too high given its growth outlook is murky.

Intel has a decent combination of a below-market earnings multiple and reasonable growth prospects. On the investment scale, it sits in between slow-growing International Business Machines Corp. (NYSE:IBM) and rapid growers in Alphabet Inc (NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB). In other words, it is not a value play, and there are certainly faster growers out there.

Overall, INTC stock represents growth at a reasonable price, and a decent dividend yield of 2.8% that should also grow reasonably over time.

As of this writing, Ryan Fuhrmann was long FB.

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