Expect Good Earnings from Intel

Tomorrow marks the beginning of second-quarter earnings season for the stocks on my Buy List. The first stock to report is Intel (INTC) and I expect to see very good results.
First, let me fill you in on the story so far. In April, Intel surprised Wall Street when it said it was expecting Q2 revenue of $10.2 billion, plus or minus $400 million. That was well above the Street’s estimate of $9.7 billion. Then in May, the company said that it was “highly confident” that it would achieve its financial goals for the second quarter.
Wall Street currently expects to see earnings of 43 cents a share. I’m not exactly giving away state secrets when I say that no one expects that. Intel will easily earn over 45 cents a share. The question is, how much over?
Investors curiously seem to feel that Intel is heavily exposed to the prospects of a double-dip recession. The shares dropped over 23% from their April high to their July low. The good news is that the stock is a solid bargain here.
Let’s go over some of the numbers. Wall Street currently expects Intel to earn $1.87 a share this year which means the stock is going for about 11 times earnings. That’s cheap right there, but there’s more. The company is sitting on a monster pile of cash, nearly $2.50 a share net. Since cash pays next to nothing, almost all of Intel’s earnings will comes from its operations. If we back out the cash, Intel’s operations are going for less than 10 times earnings.
Barron’s posted this research piece from Sterne, Agee & Leach. Here’s a sample:

We are looking for an in-line top-line quarter versus consensus of $10.9 billion (up 8% quarter-over-quarter), our estimates are $11 billion or 52 cents a share. We believe gross margins should improve sequentially as mix shifts with continued strength in notebooks and the key-server market. We continue to see Nehalem Server and strength in notebooks growing 5% to 10% quarter-over-quarter after a strong first-half 2010.
There are concerns in the supply chain, given the macro commentary with Europe and the state of the consumer. Intel has been a solid execution story, but the macro has been source of concern.

Posted by on July 12th, 2010 at 2:45 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.