By Wallace Witkowski
Intel Corp. is expected to announce a bounce-back in data-center sales Thursday, but any rebound is likely to get pushed aside as Wall Street looks for answers to bigger questions.
Intel /zigman2/quotes/203649727/composite INTC -1.22% is scheduled to report third-quarter earnings on Thursday after the close of markets. But many analysts are already looking past Thursday’s report for Intel’s Nov. 18 analyst day, which had already stood as a looming hurdle for Intel to clear when the company reported earnings three months ago .
Third-quarter data-center sales will be important, as smaller rival Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD -5.85% has shown strong gains while Intel has been reporting declines: First a more than 20% drop in the first quarter, then a better-than-feared 9% decline in the second quarter. In the third quarter, data-center sales are expected to bounce back, with analysts expecting $6.66 billion, a gain of almost 13%.
Analysts, though, are more focused on longer-term data expected to arrive at the later event. Evercore ISI analyst C.J. Muse said in a note that he expects another beat-and-raise quarter, but that Thursday’s report will mostly be a “nonevent” because there are “still too many questions up in the air” that he doesn’t expect the company to answer this week.
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“Biggest questions into the quarter will be around supply-chain dynamics, sustainability of demand trends, product cycle cadence, updates on Intel’s IDM 2.0 strategy, and margin trends,” said Muse, who has an in-line rating and a $60 price target on Intel stock.
“Thus, we continue to take a wait-and-see approach on the name, as we await greater clarity and confidence into the company’s [free cash flow] outlook in an IDM 2.0 world – where we expect the majority of incremental commentary likely to be offered during the company’s November Analyst Day rather than the upcoming print,” Muse said.
What to look for
Earnings: Of the 37 analysts surveyed by FactSet, Intel on average is expected to post adjusted earnings of $1.11 a share, or flat from a year ago. Intel forecast $1.10 a share. Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages, buy-side analysts and others, calls for adjusted earnings of $1.18 a share.
Revenue: Wall Street expects revenue of $18.24 billion from Intel, according to 30 analysts polled by FactSet. That would be down from the $18.33 billion reported in the year-ago quarter. Intel predicted revenue of $18.2 billion. Estimize expects revenue of $18.55 billion.
Analysts surveyed by FactSet expect revenue from client computing, the traditional PC group, to come in at $9.6 billion; nonvolatile memory solutions revenue of $1.01 billion; “Internet of Things,” or IoT, revenue of $998.3 million; and Mobileye revenue of $360.4 million.
Stock movement: Don’t expect an automatic bounce if Intel beats expectations: Intel shares have declined following the company’s past five quarterly earnings reports in which they topped Wall Street estimates in earnings and sales.
Intel stock fell 5.1% overall in the third quarter. Over the same period, the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.34% — which counts Intel as a component — slipped 1.9%, the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.18% advanced 0.2%, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.83% declined 0.4%, and the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX -0.59% slid 2.6%.
What analysts are saying
Morgan Stanley analyst Joseph Moore, who has an overweight rating on Intel, concurred with Muse, stating that weaker PC numbers are already baked into his forecast and that “all eyes” will be on the November meeting. Last week, research firms reported slowing PC sales growth because ongoing chip shortages and supply-chain issues.
Going into the analyst day, Moore said the most controversial issue will be the subject of Intel’s gross margins. While Moore expects gross margins to be stable, he said that Intel needs to get out in front of anything negative now.
“If there is anything from the analyst meeting that investors could see as a negative, on gross margin, on capital spending, or on product timing, the company should try to get that negative color out on this earnings call, as we don’t think the company is going to want the stock to potentially sell off on the day of the analyst day,” Moore said.
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Cowen analyst Matthew Ramsey, who has an outperform rating and a $80 price target, expects the stock to be “largely rangebound” between now and mid-November, but also zoned in on the gross margin issue.
“The 4Q21 gross margin guidance, however, will be an important metric for investors to monitor,” Ramsay said. “Implied organic 4Q21 GM of 55.0% (after accounting for a $300M one-time charge) will be the jumping off point by which 2022 and 2023 will be benchmarked with more clarity on the trajectory likely coming at the analyst day.”
Intel is the lowest pick of 10 chip stocks covered by Citi Research’s Christopher Danley, who has a neutral rating and a $57 price target on the stock. Danley expects Intel will be most affected by a slowdown in the PC end market and continued loss of data-center market share to AMD.
Of the 40 analysts who cover Intel, 15 have buy ratings, 15 have hold ratings, and 10 have sell ratings, with an average price target of $61.83.