Intel beats Q4 view, issues flat Q1-2017 outlook

Aided by an exceptional performance in data centre business, the semiconductor chip manufacturer Intel Corporation (NASDAQ: INTC) reported fiscal 2016 fourth-quarter earnings that beat analysts’ estimates by a margin of 4 cents. Still, we believe that the stock of Intel would undergo a short-term technical correction due to the reasons mentioned below.

The Santa Clara, California-based company reported a 10% rise in the fiscal 2016 fourth-quarter revenue to $16.374 billion, from $14.9 billion in the similar quarter of fiscal 2015. The revenues exceeded the Street’s consensus estimate of $15.796 billion. For the quarter ended December 2016, Intel posted a GAAP net income of $3.56 billion or $0.73 per share, compared with $3.61 billion or $0.74 per share in the quarter ended December 2015.

On a non-GAAP basis, Q4-2016 net income increased 4% to $3.9 billion, from $3.7 billion in Q4-2015. On a per share basis, the earnings in the latest quarter increased to $0.79 per share, from $0.76 per share and above analysts’ estimates of $0.75 per share.

Intel

In spite of reporting impressive fourth-quarter results, investors do have some concerns. The Client Computing platform reported a decline in the fourth-quarter revenue to $8.356 billion, from $8.400 billion in the corresponding period last year. Similarly, the quarterly operating income of Data Center Group fell to $1.88 billion, from $2.18 billion in the prior year’s similar quarter.

The company has also provided a lacklustre guidance for the first-quarter of fiscal 2017. Intel is forecasting first-quarter earnings of $0.65 per share on revenues of $14.8 billion. Analysts anticipate earnings of $0.61 per share on revenues of $14.51 billion.

For the fiscal 2017, Intel expects revenue to stay flat on a y-o-y basis. The company posted fiscal 2016 revenues of $59.5 billion. If Intel reports more or less the same revenue, then it will not meet analysts’ revenue estimates of $60.85 billion for the current fiscal year. Similarly, Intel’s fiscal 2017 earnings view of $2.80 per share is also below the Wall Street consensus estimates of $2.81 per share.

Furthermore, the company is not expecting any improvement in the weak PC market as well. The price to book value ratio of the company is 2.82, while the five year average ratio is only 2.5. This indicates that the valuation of Intel is marginally on a higher side. Thus, based on the above details, we anticipate a correction in the stock soon.

The historic price chart shows that the stock is facing resistance at 38. After recording a reading of 100, the stochastic oscillator is about to come out of the bullish zone, which exists theoretically above the reading of 80. So, a trader can anticipate the stock to decline and reach the next major support level at 36.80.

A binary trader can bet on the stock’s decline by purchasing a low or below contract. While picking up a contract for investment, the trader should make sure that the stock of Intel is trading above $37.50 in the equity market (as quoted in the broker’s platform). The expiry date for the contract should preferably fall on or around the 8th of February.

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