BMO On Intel's Q3:'We Still Aren't Fans Of The Stock'

Intel Corporation INTC has once again lowered the 2016 outlook for its DCG business. While expressing concern regarding the company’s ability to hit the DCG target, BMO Capital Markets’ Ambrish Srivastava said in a report that ASPs in DCG had continued to deteriorate, “missing what we thought was Intel’s expectation for a reversal in 3Q.”

Analyst Srivastava maintained a Market Perform rating on the company, with a price target of $34.

DCG Outlook Lowered

Intel now expects the DCG segment to generate high-singly-digit growth versus its prior projection of low-double-digit growth, which had already been lowered once. For the past four quarters, ASPs have been in the negative territory and recorded a 3 percent y/y decline in the latest quarter, versus a 1 percent decline in the prior quarter, Srivastava pointed out.

The EPS estimates for 2016 and 2017 have been reduced from $2.08 to $2.02 and from $2.86 to $2.66, respectively. The reduction in estimates reflects lower revenues and dilution from the pending Intel Security Group transaction, the analyst noted.

Disappointing Guidance

Intel reported its Q3 results ahead of expectations, with revenue of $15.8 billion, versus consensus expectation of $15.6 billion. EPS came in at $0.69, beating the consensus expectation of $0.67.

The company projected sequentially flat revenue, versus consensus expectation of 2 percent growth. Despite beating GM expectations in Q3, Intel guided to GM of 61 percent for Q4, versus the BMO estimate of 62 percent.

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