Event: INTC reports Q2 earnings today after the close. The options market is implying about a 3% move, which is slightly above both the 4 qtr avg move of 2.5%, and the 8 qtr avg of about 2.75%.
Sentiment: Wall Street analysts are not positive on INTC, with 19 buys, 26 holds, and 4 sells, and an avg 12 month price target of $30.75. That’s despite the fact that INTC is a mega cap leader in 2014, rallying 21% year-to-date. Short interest has fallen to 3.5% of the float, near its lowest level since mid-2012.
- Price Action / Technicals: INTC gapped above the 2012 high of $29.05 after the early June pre-announcement, and the stock has gradually inched higher ever since:
The $29 level is now major support given that INTC has held cleanly above it ever since the gap higher. INTC is trading at its highest level since early 2004, so traders are going to be watching the breakout quite closely in the coming weeks.
Volatility Snapshot: 30 day implied volatility in INTC is at its lowest level prior to an earnings event over the past 2 years:
That makes sense given that INTC pre-announced a month ago, taking away much of the uncertainty regarding this quarter’s earnings report. Having said that, the implied move of 3% is still higher than the 1 and 2 year averages.
Our View and Trade Update: A few weeks ago after the company’s Q2 pre-announcement we legged into some July 29 puts when the stock was just below 30 (here) with the thought that the stock could re-trace a bit of the recent move as it approached massive long term technical resistance at $30. We also though that the Q2 pre-announcement would place greater emphasis on forward guidance and that if we could own cheap(er) puts for the event (by starting out with a calendar) that we could be risking a little to possibly make a lot. At this point it would take a miracle for these July puts to be in the money by Friday’s close, but despite being wrong initially we continue to see the risk reward at current levels skewed to the downside. At 15.5x 2014 expected earnings INTC trades at the high-end of its 4 yr multiple, despite earnings growth of only 8%. The company’s continued commitment to cash return, strong balance sheet and almost 3% dividend yield has kept investors in the stock, but one of the pillars of the bull case is losing steam, cheap valuation.