Over the last three months, Intel (NASDAQ: INTC) has lost nearly 15% of its value, essentially erasing the gains it enjoyed in the first half of the year. In late July, INTC stock tumbled after its second-quarter earnings were released, even though they topped Wall Street’s expectations. The company posted earnings per share of $1.04, 8 cents better than the consensus estimate, while its revenue grew 15% year-over-year.
The main concerns that led to the selloff were detailed not long after the earnings report by Goldman Sachs analyst Toshiya Hari. The analyst downgraded Intel stock from Neutral to Sell, cutting the price target on the shares to $44, about $3 below current levels. Increased competition and concerns about margins sparked the downgrade.
Also not helping Intel’s summer was the sudden resignation of the company’s CEO, Brian Krzanich, in June due to a consensual relationship he’d had with an Intel employee.
The Verge summed it up nicely in an article about Krzanich’s departure and the questionable future of the legacy tech company. While Intel has long enjoyed a moat around its core business, it “has struggled to produce 10-nanometer chips, and competitors…have caught up with its Zen architecture for Ryzen and EPYC processors,” The Verge’s Tom Warren wrote.
Right now, Intel’s earnings are slated to grow by 10% per year over the long-term. Interestingly, over the last 90 days—as the stock has been sinking—analysts have actually increased their earnings estimates for Intel relatively substantially. Over the last three months, the consensus EPS estimate for the current quarter has risen from $1.03 to $1.15, while the consensus 2018 EPS estimate has grown from $3.84 to $4.16. But that’s largely a reflection of the increased guidance that the company provided when it reported its Q2 results.
The Trouble With INTC Stock
The trouble, though, is that INTC stock simply has no momentum, nor much of a base right now. If the chipmaker’s margins get even slightly more squeezed and the company disappoints Wall Street, all the bad press of the last few months is simply going to continue to snowball. Investors, who are rightfully skeptical about Intel’s future at the moment, are not overreacting. Until the company shows some signs of stability, I wouldn’t buy INTC stock.
The company’s relative strength index, which is meant to indicate whether a stock is overbought or oversold, is currently right around 40. That is not low enough to indicate that INTC stock is indeed oversold. And the shares are currently trading beneath their 50-day and 200-day moving averages, showing that there is no base for a move higher.
That said, if you’re already long Intel, I wouldn’t sell INTC stock either. The stock’s forward dividend yield is 2.6% and, while the yield has of course been bolstered a bit by its dismal returns of late, I think it’s enough to pacify existing investors until we have a better sense of whether Intel can weather this storm. If you’ve been a shareholder for some time, your yield on cost is likely even sweeter than that. Investors who are in that situation should give Intel at least a little longer to straighten things out.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.