Intel Corp. (NASDAQ: INTC) is set to report its most recent quarterly results after the markets close on Thursday. Thomson Reuters consensus estimates call for $1.22 in earnings per share (EPS) and $19.01 billion in revenue. The fourth quarter of last year reportedly had $1.08 in EPS and $17.05 billion in revenue.
Earlier this month, Merrill Lynch upgraded Intel to a Buy rating and raised its price objective to $60 from $52, which still implies upside of roughly 25% from the most recent closing price.
The firm believes that Intel is a compelling large-cap investment levered to multiple secular advances (cloud, artificial intelligence, 5G, autonomous cars, Internet of Things). Merrill Lynch’s prior concerns regarding macro, competition and 10nm product delays remain, but the firm thinks Intel’s expanding opportunity set, incumbency, scale and U.S. manufacturing base provide relative stability.
Intel’s transformation to a more data-centric (B2B) company can expand margins and free cash flow above consensus, with upside if Intel’s next CEO rethinks the low-return memory business, according to Merrill Lynch.
In its report, the firm went on to say:
We model 2.5% sales growth in 2019, tweaked down modestly, more back-half weighted and a deceleration from 13% growth in 2018, on tougher data center comps. Global growth slowdown is a risk but product shortages in late 2018 and replacement demand from aging base of PCs helped Intel avoid excess inventory concerns seen by its peers. Intel’s 2.5% growth-rate is better than our core-semis (ex-memory) forecast of 1.5%, inc. below 1% organic growth at large-cap peers. Our model already reflects 300 bps share loss in PCs/servers processors to AMD, though we believe the expanding pie and Intel’s incumbency, product breadth, and larger addressable market in networking and 5G (where AMD does not participate) can help Intel offset share losses.
Overall, Intel’s increasing focus on data-centric products implies an expanding opportunity, greater SG&A leverage, higher profitability and more consistent free cash flow generation. As a result, Merrill Lynch raised its 2019/20 EPS estimates further above-consensus to $4.80 and $5.25, respectively, ahead of the consensus estimates at $4.55 and $4.69.
Excluding Thursday’s move, Intel had performed more or less in line with the broad markets, with its stock up about 2% year to date. In the past 52 weeks alone, the stock was up about 5%.
Shares of Intel were last seen up about 3% at $49.51, in a 52-week range of $42.04 to $57.60. The consensus analyst price target is $54.58.
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