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Intel Q3 2019 Earnings Preview: Will INTC Stock Climb?

Benjamin Rains

Intel INTC stock has lagged far behind the broader semiconductor industry’s 2019 climb. Still, Intel stock is up 15% over the last 12 months, against the S&P 500’s 7% expansion. So, let’s take a look at what to expect from Intel’s upcoming third-quarter 2019 earnings results to see if INTC stock might be set to pop.

INTC Overview

Intel is the largest chipmaker in the U.S. in terms of revenue. However, the historic microchip firm suffered a downturn in the second quarter as part of broader semiconductor industry challenges brought on by tough to compare periods. Plus, the chip business is historically cyclical, as it is beholden to larger market spending cycles.

INTC has faced increased competition from the likes of AMD AMD recently. But investors shouldn’t worry too much about Intel’s long-term strength.

The company might not be a growth play like Nvidia NVDA or Micron MU. Instead, the firm returns a ton of value to shareholders through buybacks and dividends, of which it currently pays an annualized dividend of $1.26 per share for an impressive 2.40% yield—the 10-year U.S. Treasury note sits at 1.75%.

The company posted stronger-than-projected Q2 2019 earnings and revenue, driven by “customer demand for higher performance products in both our PC-centric and data-centric businesses.” Intel also raised its full-year guidance.

Meanwhile, China on Thursday confirmed that the world’s second-largest economy would ramp up purchases of U.S. agricultural products roughly a week after President Trump and the U.S. said they reached a “substantial phase one deal.” This is a good sign for chip companies that have been caught up in the ongoing U.S.-China trade war.

 

 

 

 

Price Movement & Valuation

INTC shares have fallen far behind the Electronic-Semiconductors Market over the last five years, up 64% vs. 137%. These trends have reserved over the last 24 months, with Intel up 29% compared to the industry’s 17%.

The chipmaker’s stock is up 10.5% in 2019 and closed regular trading Thursday at $51.86 per share, down about 13% from its 52-week highs. This could give INTC stock room to run if it is able to impress Wall Street next week.

In terms of valuation, Intel appears solid at the moment, trading at 11.8X forward 12-months Zacks Consensus earnings estimates. This marks a significant discount against its industry’s 15.2X average, as well as its own five-year median of 12.8X and 16.2X high.

 

 

 

 

Q3 Outlook & Beyond

The semiconductor behemoth’s quarterly revenue is projected to slip 5.9% from the year-ago period to $18.04 billion, based on our Zacks Consensus Estimates. Despite the expected decline, investors should note that Q3 2018’s sales soared 19% year-over-year, which makes this quarter’s expected downturn much more understandable.

The company’s adjusted quarterly earnings estimates are also expected to slip 11.4% to $1.24 per share. However, the company blew by our bottom-line estimate last quarter by 19% as part of a much longer history of quarterly earnings beats.

Intel’s full-year fiscal 2019 sales are expected slip 2.1%, with earnings projected to dip 4.4%. Then, peeking ahead, Intel’s 2020 revenue is projected to pop 2.2% above our 2019 estimate to outpace 2018’s total. And the company’s bottom line is expected to pop 1.3%.

 

 

 

 

Bottom Line

To help put things into perspective, INTC’s FY 2018 sales surged 13%, 2017’s popped 6%, and 2016 climbed 7.3%. Before that, 2015’s sales slipped 1% and 2013 sale’s dipped 1.2%. This means that a downturn is hardly uncommon, especially when stacked up against such a solid run.

Intel is currently a Zacks Rank #3 (Hold) that boasts “B” grades for Growth and Momentum and an “A” for Value in our Style Scores system. INTC is scheduled to release its Q3 earnings results on Thursday, October 24. The firm joins Boeing BA, Microsoft MSFT, Amazon AMZN, and many other giants set to report the week of October 21 (also read: Solid Start to Q3 Earnings Season).

In the end, Intel is a solid income stock to consider that provides exposure to a semiconductor industry that will continue to drive the tech sector for years to come. Investors should also pay attention to any Mobileye updates, as the autonomous vehicle tech segment could prove to be a big winner down the road.

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