Event: INTC reports Q1 earnings after the close tonight, the options market is implying about a 3.75% move for earnings, which is rich to the 4 qtr avg move of about 3.5%.
Price Action / Sentiment:
- INTC remains a relative under-performer year to date, up only 5%, vs the Nasdaq which is up 7.5% and the SOX that is up ~11%.
- Wall Street analysts remain fairly mixed on the stock with 17 Buys, 30 Holds and 6 Sells with any average 12 month price target that sits only about 6% higher than current levels.
- Short interest rests near 52 week highs at about 5% of the float.
Technicals: INTC was in a brutal downtrend for much of 2012, and the stock has been dead money ever since. The 1 year daily chart shows that recent consolidation:
The stock has been stuck between 20 and 23 all year. Those are the 2 levels to watch as support and resistance going forward.
Vol Snapshot: April IV is around 50 at-the-money which is about twice that of May. The average IV across all months is elevated to its typical pre-earnings levels. Here’s how IV30 (red) and HV30 (blue) look over the past 2 years with earnings:
Look for May vol to come in about 25% following the report.
* 1Q GAAP EPS 41c (range 35c-46c)
* 1Q rev. est. $12.59b (range $12.25b-$12.8b); Jan. 17, INTC forecast 1Q rev. $12.2b-$13.2b
* 1Q gross margin est. 57.8% (range 56.8%-59.2%); Jan. 17, INTC forecast gm 58%, plus or minus a couple of percentage points
* 2Q rev. est. $12.86b (range $12.2b-$13.36b)
* 2Q gross margin est. 57.8% (range 55%-59%)
* NOTE: Jan. 17, INTC forecast 2013 rev. growth in “low single-digit” percentage, gross margin 60%, plus or minus a couple of percentage points and 2013 capex $13b, plus or minus $500m
MY VIEW: Despite the stocks under-performance for the last 12 months to the broad market and most large cap tech peers, INTC is a tough press on the short side at current levels. The company is in the midst of a leadership transition at a time where they have been left on the sidelines in the secular computing shift towards tablets and mobile-phones. These challenges are fairly well known, but the company’s 4.15% dividend yield, $9 billion in net cash on the balance sheet, and a bare bones valuation make the stock fairly attractive to hardcore value buyers. Any incremental news on their CEO succession plan should serve as a near term positive, but I think it is safe to say that the likelihood of a beat and raise seem low given the recent PC sales data that was near disastrous for the entire PC supply chain. The company is in desperate need of some bold new initiatives, and I wonder if the next catalyst is a merger with a better positioned peer to gain the management leadership and product diversification that the company will need to maintain market share as demand continues to shift towards mobile computing.