It Will Take a Huge Earnings Report to Move Intel Stock Higher

Intel heads into earnings at a 19-year high, while seemingly lacking a catalyst to move higher

Intel (NASDAQ:INTC) reports earnings on Thursday afternoon on an absolute roll. Intel stock touched a 19-year high this week. And after stumbling toward the end of last year, INTC stock now has gained 25% so far this year.

It Will Take a Huge Earnings Report to Move Intel Stock Higher
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Even what looks like bad news is good news. The surprise settlement between Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) last week meant the end of Intel’s efforts to develop its own 5G modem. But analysts actually saw the loss of business as a positive, and INTC stock jumped higher.

The question at this point, however, is just how much good news is priced in … and how much good news is left to report. Intel stock admittedly doesn’t look that expensive, at a little over 12x 2020 earnings-per-share estimates. But the big run so far this year, in turn, has raised expectations and that means Intel earnings on Thursday need to be quite strong just to keep the stock at its current, elevated levels.

Intel Earnings

One plus for Intel is that expectations for the first quarter aren’t particularly high. Consensus estimates project a modest decline (0.3%) in revenue year-over-year, with adjusted EPS equal to last year’s 87 cents. Those estimates almost exactly match Intel’s guidance for the quarter, given with Q4 results back in January.

So if Intel was being conservative with its guidance, the company should be able to post a headline beat on Thursday afternoon. But there’s more to the report than just meeting — or beating — expectations. Any beat means Intel was able to grow revenue and earnings — growth that, even with the big gains of late, isn’t quite priced in.

And it would show that the company’s “data-centric” strategy, as the company terms it, is working. Data-centric revenue accounted for 48% of the 2018 total, per the 10-K, and likely over half this year. The remainder — sales related to PCs — is unlikely to grow, putting pressure on the data side of the business.

To be sure, Q1 earnings alone won’t make or break the case for Intel stock. But they can certainly impact the narrative, particularly in the near term. An earnings beat means Intel is growing. It means the shift to data-centric products is working. And it suggests that the earnings multiple assigned to INTC could expand, moving Intel stock higher.

On the other hand, however, any stumble looks dangerous. Again, Intel is up 25% this year; it has added over $50 billion in market capitalization. While the stock isn’t particularly expensive, bulls clearly are looking for good news from earnings. If they don’t get it, INTC stock could struggle on Thursday … and beyond.

INTC Stock Looks Expensive

I wrote at the end of 2018 that INTC stock didn’t look like the best chip play for 2019, and that has actually been the case. Nvidia (NASDAQ:NVDA) has risen 41%. Shares of Intel rival Advanced Micro Devices (NASDAQ:AMD) have gained 52%. Given the optimism toward chip stocks and the pessimism with which the market closed 2018, INTC’s gains this year aren’t quite as much of an outlier as they might seem.

That said, it does look like Intel is going to have to post a big beat on Thursday to keep this rally going. Intel stock has actually outpaced Wall Street, whose average target is just $54.59, suggesting 7%+ downside; 12x+ earnings might seem cheap, but half the business is likely to decline as PC unit sales continue to fall. While the valuation here might not seem prohibitive, there doesn’t seem to be much room for error here.

That’s true in terms of earnings Thursday, but it’s also true beyond the report. Intel is a wonderful company, but the reliance on PCs and the cyclical nature of the semiconductor space both suggest that Intel stock should be rather cheap. Earnings on Thursday are likely to provide further evidence, and that probably won’t do much for INTC stock.

As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.

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