Event: INTC reports its Q3 earnings tonight after the close. The options market is implying about a 3.75% one day move, which is above the 4 qtr avg of about 3.25% and the 8 qtr avg of about 3%.
Sentiment: Wall Street analysts are far from positive on the stock, with 17 Buys, 24 Holds and 8 Sells, with an average 12 month price target of around $24. The stock’s short interest stands at 5% of its float (up from about 3.5% a year ago), its highest level in many years and quite high for $100 billion+ market cap company.
Options Open Interest: Open interest is almost evenly split between puts and calls. The Oct 24 and Oct 25 calls, and the Oct 22 and Oct 20 puts all have more than 100k of open interest. The Jan14 25 calls also have more than 100k of open interest. Recent volumes have been skewed somewhat to calls.
Price Action / Technicals: INTC is trading at the same spot it was in early 2010, a major laggard in a massive bull market for U.S. stocks. More recently, the stock had a strong start to 2013, but has faltered ever since a weak earnings report in mid-July, though the stock has remained above the 200 day moving average for the most part:
More important long-term support is around the $22 level, while the earnings gap from just above $24 has still not been filled on the upside.
Volatility: INTC 30 day implied volatility is in the high 20’s, right around where it has been prior to its last 3 earnings reports:
Given the low level of recent realized volatility in INTC, implied vol is likely to move below 20 after earnings. As a result, for the underlying stock, a breach of the 24 level on the upside or the 22 level on the downside seems unlikely.
Our View: INTC has been on the wrong end of the decline in the personal computer business over the last couple years. Despite its relatively cheap valuation and almost 4% dividend yield, the stock has been a major laggard in a big bull market. While the expectations bar has been set quite low, there are few signs that industry trends are turning in INTC’s favor. If it’s more of the same, we don’t expect much of a bounce for this middling company.