Can Intel (INTC) Surpass Expectations With Its Q2 Earnings?

Intel Corporation (INTC), a titan in the world of semiconductors, will report its fiscal 2024 second-quarter earnings on August 1. In this piece, we will determine whether Intel can surpass earnings expectations in its upcoming report.

For the second quarter (ended June 2024), analysts expect a slight year-over-year revenue increase to $13.02 billion, contrasting with the 8.6% growth seen in the preceding quarter. The company's adjusted earnings per share are forecasted to sit at $0.10, down 19.5% year-over-year. Nevertheless, the company has an impressive surprise history, beating the consensus revenue estimates in three of the trailing four quarters.

Intel's latest financial performance has been robust, driven by solid innovation across its client, edge, and data center portfolios. The company delivered double-digit revenue growth in its products, with total Intel Products revenue reaching $11.90 billion in the first quarter of 2024, a 17% year-over-year increase. Revenue from the Client Computing Group (CCG) rose 31% year-over-year.

While the company’s first-quarter revenue of $12.72 billion fell short of the forecasted $12.78 billion, the adjusted EPS of $0.18 surpassed analysts’ expectations of a loss per share of $0.15. Given this performance, there is potential for another beat in the upcoming earnings report.

For the second quarter, Intel expects its revenue to come between $12.5 billion and $13.5 billion, while its non-GAAP earnings per share is expected to be $0.10.

Shares of INTC have gained 12.8% in the past month and 6.5% over the past year to close the last trading session at $34.87. However, the stock has plunged 30.6% year-to-date.

Let’s look at factors that could influence INTC’s performance in the upcoming months.

Mixed Financials

For the first quarter of 2024 (ended March 30), INTC’s net revenue increased 8.6% year-over-year to $12.72 billion, primarily driven by growth in its personal computing, data center, and AI business. Intel’s Data Center and AI (DCAI) division, which offers server chips, saw sales uptick 5% to $3.04 billion.

The company reported a non-GAAP operating income of $723 million, compared to an operating loss of $294 million in the prior year’s quarter. Further, its non-GAAP net income and non-GAAP earnings per share came in at $759 million and $0.18 versus a net loss and loss per share of $169 million and $0.04, respectively, in the same quarter last year.

However, its cash outflow from operating activities for the quarter amounted to $1.22 billion, while its adjusted free cash flow was negative $6.18 billion. As of March 30, 2024, its cash and cash equivalents decreased to $6.92 billion from $7.08 billion recorded as of December 31, 2023.

Mixed Analyst Expectations

Analysts expect INTC’s revenue for the third quarter (ending September 2024) to increase 2% year-over-year to $14.44 billion. However, the consensus EPS estimate of $0.32 for the same period indicates a 22.5% year-over-year decline.

For the fiscal year ending December 2024, Street expects INTC’s revenue and EPS to grow 3% and 4.6% from the prior year to $55.87 billion and $1.10, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 12.1% and 78.9% year-over-year to $62.64 billion and $1.98, respectively.

Discounted Valuation

In terms of forward non-GAAP PEG, INTC is trading at 0.66x, which is 67.3% lower than the industry average of 2.01x. Similarly, the stock’s forward EV/EBITDA and Price/Sales multiples of 12.35 and 2.66 are 16.7% and 8.2% lower than the respective industry averages of 14.83x and 2.89x. Additionally, the stock’s 13.27x forward Price/Cash Flow is 43.4% below the industry average of 23.43x.

Weak Profitability

INTC’s trailing-12-month gross profit margin of 41.49% is 15.5% lower than the industry average of 49.09%. Likewise, its trailing-12-month EBIT margin and ROTC of 1.29% and 0.28% are below their industry averages of 5% and 2.78%, respectively. In addition, the stock’s 3.99% trailing-12-month ROCE is 6.9% lower than the 4.28% industry average.

POWR Ratings Exhibit Mixed Prospects

INTC’s stance is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. INTC has a B grade in Value, which is in sync with its lower-than-industry valuation.

However, it earned a grade of C for Sentiment, consistent with its mixed analysts' estimates. The stock’s C grade for Momentum is justified by its share price, which is currently trading above its 50-day moving average of $31.03 but below the 200-day moving average of $38.89.

INTC is ranked #74 out of 92 stocks in the Semiconductor & Wireless Chip industry. Click here to access INTC’s Growth, Momentum, Stability, and Quality ratings.

Bottom Line

The company had strong top and bottom-line growth in the first quarter of 2024, particularly in crucial segments such as personal computing, data center, and AI. Despite these positives, ongoing operational challenges include significant cash outflows and reduced cash reserves.

As we anticipate its second-quarter results, analysts foresee a potential decrease in earnings per share alongside modest revenue growth. This cautious outlook reflects INTC’s ongoing efforts to navigate competitive pressures and strategic shifts within the semiconductor industry.

Considering INTC’s mixed analyst estimates, weak profitability metrics, and enhanced volatility (24-month beta of 1.39), it could be wise to wait for the better entry point in this stock now.

How Does Intel Corporation (INTC) Stack Up Against Its Peers?

While INTC has an overall grade of C, equating to a Neutral rating, you may also check out these A (Strong Buy) and B (Buy) rated stocks within the Semiconductor & Wireless Chip industry: ChipMOS TECHNOLOGIES INC. (IMOS), Tower Semiconductor Ltd. (TSEM), and Photronics, Inc. (PLAB). To explore more A and B-rated Semiconductor & Wireless Chip stocks, click here.

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INTC shares were trading at $33.35 per share on Thursday afternoon, down $1.52 (-4.36%). Year-to-date, INTC has declined -33.17%, versus a 17.71% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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