5 Key Points From Intel's Q3 Beat

Intel CorporationINTCthird quarter earnings report, analysts at Oppenheimer said in a research report. However, the firm's Rick Schafer continues to recommend investors sit on the sidelines and maintains a Perform rating on Intel's stock with no assigned price target.

Q3 Beat's Key Points

The analyst offered five key points from Intel's third-quarter report.

Client computing (55 percent of sales) revenue was flat on a year-over-year basis as a 7 percent platform average selling price merely offset an equal unit decline. Intel's management did say that the PC market continues to improve and the analyst believes the company is tracking ahead of its own 2017 mid-single-digit growth estimate.

Datacenter Engineering Group (30 percent of revenue) saw its revenue rise 7 percent year over year with a 24-percent growth in cloud-related activities and a 9-percent growth from comm-SP. Cloud and comm SP now account for approximately 60 percent of the entire segment and management believes growth can accelerate from a ramp in Purely.

Memory (6 percent of revenue) saw its revenue grow 37 percent from a year ago as the Dalian fab began ramping ahead of schedule. The company's acquisition of Israel-based Mobileye contributed $82 million of revenue in the third quarter and has now won 14 ADAS design wins in 2017.

Intel reported a gross margin rate of 63.9 percent, which was 90 basis points better than expected but also down 90 basis points year over year and came at a time when the top-line grew by 6 percent year to date.

Intel's stock is trading at 13x the analyst's calendar year 2018 EPS (excluding cash), which represents a discount to higher-growth peers at 17x. The discount is justified as Intel remains a small player in non-PC verticals (i.e autonomous driving, IoT) while more than 50 percent of its entire business is still tied to the "secularly challenged" PC market.

Bottom line, Intel's earnings report was impressive but upside to Intel's stock is limited due to an overexposure to the PC market while free cash flow and capital returns remain "limited" due to heavy capex activity.

At time of publication, shares of Intel were up 5.57 percent at $43.63.

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