Intel Beats Q3 Estimates, Raises FY17 Rev. Outlook

Intel Beats Q3 Estimates, Raises FY17 Rev. Outlook

On October 26th, semiconductor chip manufacturer Intel Corporation (NASDAQ: INTC) reported a 33.6% increase in the fiscal 2017 third-quarter net income, compared with the similar period of 2016. The company also surpassed analysts’ estimates. Further, Intel also raised its FY17 revenue and Q4 EPS outlook. The investors rewarded the company by pushing the share price to a new 12-month high of $47.30. However, on the basis of current valuations, as explained below, we anticipate a short-term correction in the share price.

The Santa Clara, California-based company reported third-quarter net revenues of $16.149 billion, up from $15.778 billion reported in the year-ago period. The Thomson Reuters Consensus estimate was $15.73 billion.

During the September quarter, Intel recorded net income of $4.516 billion, or $0.94 per share, compared with $3.378 billion, or $0.69 per share, in the similar period last year. Excluding inventory valuation, amortisation of acquisition-related intangibles, restructuring and acquisition charges, among others, the non-GAAP net income increased to $4.848 billion, or $1.01 per share, from $3.886 billion, or $0.80 per share, last year. The Wall Street analysts had expected earnings of $0.80 per share for the third-quarter.

Client Computing Group, which includes platforms for notebooks, desktops, 2 in1 systems, phones, tablets, mobile communication components, wireless and wired connectivity products, reported Q3 2017 revenue of $8.860 billion, an increase from $8.213 billion in Q3 last year. Data Center Group’s revenue grew 7% y-o-y to $4.878 billion. The Data Center Group includes workload-optimized platforms for storage and network functions, and related products for enterprise, cloud, and communication infrastructure market segments.

Internet of Things Group recorded revenue of $849 million, up 23% from the similar period last year. Non-volatile memory solutions group and Programmable solutions group posted revenue of $891 million and $469 million, an increase of 37% and 10%, respectively, on a year-over-year basis. Non-volatile memory solutions group includes SSD products and NAND flash memory products primarily used in solid-state drives. Programmable solutions group includes semiconductors such as field-programmable gate array (FPGAs) and related products for communications and other market segments.

At the end of September quarter 2017, cash and cash equivalents increased to $9.075 billion, from $5.560 billion in December 2016.

For fiscal 2017, the company now expects revenues of $62 billion, versus analysts estimates of $61.4 billion. Likewise, the Q4 2017 earnings are now anticipated to be $3.25 per share, while the Street expectations are $3.01 per share.

The performance is impressive. Still, we expect a correction as Intel trades at a forward PE ratio of about 15, while the historic average is only 13.4. Likewise, the price to book ratio and price to cash flow is 3.1 and 9.9, respectively. That compares with the historic price to book ratio and price to cash flow ratio of 2.5 and 8, respectively. Thus, we expect the stock of Intel to undergo a correction in the week ahead.

The stock is facing resistance at 46.50. The oscillator of moving average is declining, while the William Vix-Fix indicator has crossed above the recent high. That indicates an increase in the selling pressure. Thus, we forecast a decline in the share price. The next major support for the stock is at 39.80.

Intel - Technical Analysis - 7th November 2017

We wish to place a bet on a put option to capitalise on the downtrend. From one of the binary brokers listed here, we will scout for an option expiring on or around November 15. Once that is done, we will set up the trade when the stock changes hands at about $46.70 in the US equity market.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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