Intel Earnings Preview: High Expectations, Still No CEO

When Intel Corporation INTC earnings report is released after the closing bell today, a big question that is top of mind for many investors is if the company has found a new CEO yet.  

CEO Brian Krzanich abruptly resigned over a month ago when the company said that it had discovered he had violated its non-fraternization policy in the past, according to a press release. In the meantime, the board of directors named Chief Financial Officer Robert Swan as the interim CEO. So far, there’s been no word from the board on a more permanent replacement. It’s a topic that’s likely to come up on today’s earnings call. 

That news sent the stock down 4 percent on June 21. Even with the recent pullback, INTC is still up 50.88 percent over the past year, helped by a streak of stronger-than-expected earnings in recent quarters. Analysts are again expecting a strong quarter and expectations are on the high end after the company beat earnings estimates by a wide margin in each of the last three quarters.  

For Q2, INTC is expected to report adjusted EPS of $0.99 on revenue of $16.76 billion, according to third-party consensus analyst estimates. In the same quarter last year, the company reported adjusted EPS of $0.72 on revenue of $14.76 billion. 

Analysts have said they are again expecting growth in the second quarter to be driven by what INTC refers to as its data-centric businesses: the Data Center Group (DCG), Internet of Things Group (IOTG), Non-Volatile Memory Solutions Group (NSG), and Programmable Solutions Group (PSG). Meanwhile, the PC-focused Client Computing Group (CCG), INTC’s largest division by revenue, is expected to grow in the low-single-digits, similar to Q1.

In Q1, INTC reported that CCG revenue increased 3 percent year over year to $8.2 billion, accounting for just over half of the $16.1 billion in total revenue. Revenue in its second largest business, DCG, increased 24 percent year over year to $5.2 billion. IOTG revenue grew 17 percent to $840 million, NSG revenue was up 20 percent to $1 billion, and PSG revenue increased 17 percent to $498 million. 

One area that several analyst have expressed concerns about has been the company’s delays to high-volume shipments of its 10 nm chips. On last quarter’s call, management said volume production wouldn’t start until 2019, another of several delays. 

Analysts have said their concern is that the semiconductor sector is extremely competitive right now, and continued delays could result in customers shifting to other suppliers with more advanced products—smaller, more power and greater efficiency. It’s likely to come up again on tomorrow’s call, as it’s been a regular topic of discussion. 

Up on the Year. So far this year, INTC is up 11.91 percent, outperforming the S&P 500’s (SPX) 5.57 percent increase. CEO Brian Krzanich’s abrupt resignation sent the stock down 4 percent on June 21. INTC has been trading around $52 for the past few weeks, which was the low the day the resignation was announced. Chart source: thinkorswim^® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Intel Options Trading Activity

Around the upcoming earnings release, options traders have priced in a 3.7 percent stock move in either direction, according to the Market Maker Move indicator on the thinkorswim^® platform. Implied volatility was at the 61st percentile as of this morning. 

In short-term trading at the July 27 weekly expiration, calls have been active at the 52 and 54 strike prices, while puts have been active at the 50 and 52 strikes. Overall, recent volume has been much heavier for calls. 

Further out at the August 17 monthly expiration, calls have seen heavier trading at the 52.5 and 55 strikes. Volume has been lighter for puts, and trading has been concentrated at the 50 and 52.5 strikes. 

During yesterday’s session, about two calls traded hands for each put, with volume of 54,953 contracts on the call side and 24,609 on the put side. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

What’s Coming Up

Tomorrow morning, oil supermajors Chevron Corporation CVX and Exxon Mobil Corporation XOM release quarterly results. 

Caterpillar Inc. CAT kicks things off next week with its report before the open on Monday, July 30. Some of the other reports on tap include Apple Inc. AAPL after the close Tuesday, July 31; Tesla Inc. TSLA after the close on Wednesday, August 1; and MGM Resorts International MGM before the open Thursday, August 2, with Activision Blizzard, Inc. ATVI scheduled after the close the same day. 

The Fed’s July meeting is also coming up July 31 to August 1, and July’s employment report is due out in the morning on Friday, August 3. So there’s a lot coming up to consider keeping an eye on. For a look at what else is going on, check out today’s Market Update if you have time. 

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.