What's in the Offing for Intel's (INTC) Earnings in Q2?

Zacks Equity Research

Intel INTC is set to report second-quarter fiscal 2019 results on Jul 25.

In the trailing four quarters, the company’s results surpassed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 8.5%.

In the last reported quarter, the company’s non-GAAP earnings of 89 cents per share beat the Zacks Consensus Estimate by a couple of cents and improved 2.3% on a year-over-year basis.

Revenues totaled $16.061 billion, outpacing the Zacks Consensus Estimate of $16.01 billion. However, revenues were marginally below the year-ago reported figure of $16.066 billion.

Guidance and Estimates for Q2

Intel guided second-quarter 2019 revenues of around $15.6 billion. Non-GAAP earnings are anticipated to be 89 cents per share, down 14% year over year.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 88 cents per share, unchanged over the last 30 days. The bottom line indicated a decline of 15.4% the year-ago quarter. The Zacks Consensus Estimate for revenues stands at $15.6 billion, suggesting a decline of 8% from the year-ago reported figure.

Notably, Intel’s stock has returned 7.1% year to date, underperforming with the industry’s rally of 15.4%.

So, let’s see how things are shaping up prior to the upcoming announcement.

Factors at Play

Intel’s results for the fiscal second quarter are likely to be under pressure owing to challenges pertaining to NAND pricing declines, lower platform revenues, and expenses related to 4G modem ramp.

Weakness in demand from China, softness in NAND flash pricing trends, expenses pertaining to 10-nanometer (nm) ramp and constrained supply negatively impacted top-line performance in the last reported quarter. Further, sluggish data center demand from enterprise and government end markets led to decline. The headwind is expected to persist and will affect the to-be-reported quarter.

However, Intel’s focus on data center, cloud, self-driving car, AI and IoT is likely to be a key catalyst for the to-be-reported quarter. The company’s efforts to launch innovative products and strategic collaborations are commendable.

Intel recently made a slew of announcements at COMPUTEX 2019. The chief attraction of the event was demonstration of the much-awaited 10th generation core processor by Gregory Bryant from the company’s Client Computing Group (CCG). The new 10th Gen CPUs are powered with robust performance features, enhancing productivity of mainstream laptops.

We believe the new CPUs will expand the company’s customer base going ahead, consequently, bolstering CCG revenues.

Intel also upped the ante in PC gaming by unveiling 9th Gen Intel Core i9-9900KS processor which offers 5 GHz clock frequency on all cores. The company also introduced 14 new Xeon E processors that feature up to 16 threads, 8 cores, and offer 5 GHz turbo frequency. We believe that these launches will improve scalability, reliability, power and density requirements of HPC deployments, positively impacting the to-be-reported quarter’s business.

We anticipate the product launches to bolster Intel’s presence in the market amid rising competition from Advanced Micro Devices AMD, NVIDIA and Qualcomm, which in turn is likely to aid the company’s top line in the upcoming quarterly results.

It is worth mentioning that Intel recently inked a deal to acquire Barefoot Networks, a startup chipmaker company, which specializes in providing Ethernet-based customized networking technology.

Intel expects Barefoot Networks to enhance capabilities in providing cloud-capable networking infrastructure, which will consequently augment its data center customer base.

We believe synergies from buyouts, strategic alliances and addition of innovative capabilities are likely to act as tailwinds for the to-be-reported quarter’s results.

What the Zacks Model Unveils

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Intel has a Zacks Rank #3 and an Earnings ESP of -0.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks which you may consider as our model shows that these have the right combination of elements to post an earnings beat in its upcoming release:

Lockheed Martin Corporation LMT has an Earnings ESP of +0.14% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Amerisource Bergen Corporation ABC has an Earnings ESP of +0.8.2% and a Zacks Rank #2.

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