Perhaps You Don't Understand
Four times a year, during the mental break that comes in between earnings seasons, everyone looks forward to the lead-off hitters. Ever since Alcoa (AA) split from Arconic (ARNC) , the big banks have hit at the top of the order. While the fortunes of the banks certainly matter to me, as I almost always have some kind of position in JP Morgan (JPM) at a minimum, I always make a mental note of where Intel (INTC) is on the calendar. Why is that? They may not be the fanciest. They may not be a growth name. All they are is gigantic, and run with quarterly revenues that dwarf the rest of the space.
So why focus on Intel? Simply because this may be the best read in one place that an investor can make into the health of the semiconductor industry as a whole. Why the semis? That's easy. Chip stock performance underscores the health of almost everything else. If chip stocks are cold, business spending itself is cold. In fact, if chip stocks are cold, the consumer, him or herself, is probably cold as well. Just ask Apple (AAPL) .
For traders, while there are times when Intel will ramp up into, or descend into, a new trading range, the stock almost always stabilizes in a multi-months long pattern, while paying a consistent dividend. That's really all that a risk manager can ask of an equity, and I really can not imagine my largest portfolio not having this stock as one of it's anchors. If you still haven't figured it out, Intel reports tonight.
The final bell will peal this afternoon at 4 pm ET. The Mighty Intel will drag the lumber to the plate. The crowd will hush. The hurler will deal. Are expectations that great? Let's take a peak. Wall Street seems to be looking for Q4 EPS of $1.22 on revenue of more than $19 billion. If realized, these numbers point to earnings growth of 13% on sales growth of more than 11%. So, yes, Matthew Pocket, I would say that expectations are well above market norms. Traders may want to make note that Intel has beaten earnings consensus view in each and every quarter since Q3 2015.
Under interim CEO Robert Swan's guidance, the firm has been innovative in terms of product development. I have been a public advocate for the firm's retention of Swan in that position on a permanent basis. Just one caveat. Swan is on the record stating that he has no interest in the job, despite the firm's better than expected performance since taking on the role.
Does Intel announce a permanent CEO tonight? I think, depending on who it is, the stock may react one way or the other regardless of performance. While I think the shares would pop if Swan were to change his mind upon being offered the job, there are other individuals of interest. Personally, I like Lisa Su, CEO of Advanced Micro Devices (AMD) , though I do not see that hire very likely.
Given that those two are not options, I think markets would openly receive one other possible player. That would be long time Intel veteran Diane Bryant. Bryant ran the data center business at Intel prior to leaving in 2017 to join Alphabet (GOOGL) as COO of that firm's cloud business. Bryant worked closely at Intel with Amazon (AMZN) as that firm built out the AWS business. Bryant left the Google Cloud this past July. As far as I can tell she is sits on the boards of both Broadcom (AVGO) and United Technologies (UTX) . Gonna wait for a better candidate? May be a while.
Target Price (Trade): $52
Target Price (Investment): $56
Add-Ons (minimal lots)
Long 100 shares of this name? There are ways to manipulate net basis downward. Consider these choices.
- Sell one INTC July $44 put (implied value: $1.74)
- Sell one INTC July $55 call (implied value: $1.77)
The retail trader can knock an aggregate $3.51 off of net basis this way. The catch is that depending on where the equity trades in six months, the trader may have to double up at the $42 level, or may be committed to taking a profit at $55. Over those six months, this trader will likely be paid a quarterly dividend (30 cents) twice, thus reducing net basis by a now $4.11 after all considerations. That's an 8.2% head start. Rock on.