One Step Forward, Two Steps Back For Intel

One of our top 12 stocks in the Nasdaq, Intel INTC is reporting on Thursday. We've been tracking this one for a while as we track the top 12 weighted stocks in the Nasdaq 100 amongst other markets. Our analysis lines up pretty clearly on this one so we wanted to share our combined thoughts about what is happening with the company and where we think the company is going to be going as a result.

Fundamentals: Intel announced last week at CES that they would finally drop the McAfee name from their security division, in an effort to boost their brand recognition amongst consumers. Any efforts to boost consumer brand recognition helps to strengthen the speculation that Intel's consumer electronics projects, that have never been a major source of revenue, may be a larger focus in 2014. Despite this focus, few analysts foresee a consumer product line becoming significant in 2014. Odds favor increased chip sales to Apple and others, as well as improved profitability in the existing product lines. Most analysts see 2015-2017 being closer to a realistic time frame for payoffs to Intel in the consumer space; however, at this juncture they have not been clear if this will be an entirely ecosystem play (in which case the McAfee re-branding doesn't make a difference), or a true consumer play (in which case they need to get some consumer branding leadership on the team). For example, Apple hired the CEOs of Yves St Laurent and of Burberry to the team and they are already a great consumer brand. Who will Intel bring on board to lead wearable device fashion (yes fashion is important for a wearable product to succeed).

Historically, we've seen Intel trade based on news and product line changes. Earlier last year the stock was down for months heading into August 2013 as issue after issue arose in the Haswell release. The company continually underperformed all market expectations, and after the release of the chip, returned to beating the Wall St. Consensus. Those product headwinds have gone away as has the renewed interest in establishing a better brand. This should lead to a return to beating Wall St. and other estimates.

Wall St. Expectations - EPS $.52, Revs $13,714

Estimize Number - EPS $.53, Revs $13,792

The average analyst target price for Intel is $24.50 per share, slightly lower than the current market price. Shares of Intel have risen about 25% from the 52-week low. That matches fairly well the options activity according to Schaeffer's Research, the expectation is for INTC to finish at or below the breakeven level of $24.81 (bought strike less the net debit of $0.19) by next Friday's close, which is when the front-month options expire. Ideally, INTC will land right at $24, allowing the trader (or traders, as the case may be) to collect the maximum potential profit of $0.81 (the difference between the two strikes less the net debit) per pair of puts. If INTC remains above $25, the loss is limited to the net debit paid.











Technicals: Last week, we showed this chart, allowing for a bit further upside, before a major decline follows. Regardless of the next 1-2 points though, the next 6-10 points should be to the downside, with more bearish potential thereafter. The monthly and weekly stochastics (not shown on this daily bar chart) are at the extreme overbought levels typically seen at highs (June '13 and April '12). The last two revolutions of which led to 12% and 30% declines, respectively. Our DSE (decision support engine) warns that either into 27, or upon a break of 25, objectivity favors the downward path for the next few months, at least.

This lines up nicely with what we are seeing from a fundamental perspective.

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