Intel's Risk/Reward Is Not Good, According To Citi

Citi’s Christopher Danely believes the risk/reward on Intel Corporation INTC is “not good,” given that margins and business conditions seemed to have, and expressed concern regarding high inventory.

Danely maintained a Neutral rating on the company, while lowering the price target from $38 to $36.

Related Link: Intel Beats On Earnings, Shares Fall 4%

Intel reported its Q3 2016 results, with sales of $15.8 billion, representing 17 percent quarter-on-quarter growth, and well ahead of the preannouncement and normal seasonality, driven mostly by PC restocking.

Gross margin grew 290 bps quarter-on-quarter to 64.8 percent, beating the estimate and guidance, driven by lower costs and higher revenue.

The EPS came in at $0.78, ahead of the estimate and consensus, driven by higher margins and revenue.

Guidance Disappointing

Intel provided Q4 2016 guidance below expectations, driven by PC component de-stocking and weakening data center growth.

The company guided to Q4 2016 revenue of $15.7 billion, below the estimate and consensus, driven by “inventory burn in the PC end market and slowing growth in its high-margin data center business,” the analyst mentioned.

Gross margins were guided to 63 percent, representing a 180 bps quarter-on-quarter decline, in line with the previous estimate and consensus expectations.

The C16 revenue estimate has been lowered, while the EPS estimate has been raised, following the Q3 upside.