With an almost 50% decline in the past twelve months, Intel (INTC) stock has been facing challenges to its price, driven by prolonged chip supply shortages, risk of a recession and weakening demand in datacenter and consumer products.
However, based on valuation, now seems like an ideal time to buy the stock. Can Intel demonstrate an ability to regain market share and return value to shareholders? These are a few questions investors will ask when the company reports fourth quarter fiscal 2022 earnings results after the closing bell Thursday. While Intel has surpassed the Street’s earnings and revenue estimates in three of the past four quarters, weaknesses in the datacenter group and client computing group have pressured the stock.
However, things have begun to improve. According to Mercury Research, during the past three months, Intel has regained some market share in consumer computing (PC and Laptops) compared to rivals AMD (AMD) and Nvidia (NVDA). “We expect Intel to continue taking away desktop and notebook market share from AMD because of the recent Raptor Lake launch,” noted the report. What’s more, Intel has begun to address its capital position, aiming to cut costs by $3 billion in this fiscal year, while reducing annual operating expenses by $8 to $10 billion by 2025.
From a valuation perspective, with a forward P/E of 15, which is inline with its historical average, now may be an opportunity to add Intel for the long term. With its dividend yield of 5%, patient investors who are willing to allow the company time to take back semiconductor market leadership can be rewarded. That said, while Intel has been showing promising results, the company on Thursday must deliver another top and bottom line beat, while selling the upside potential of its recent manufacturing plants.
For the quarter that ended December, the Santa Clara, Calif.-based company is expected to earn 20 cents per share on revenue of $14.48 billion. This compares to the year-ago quarter when earnings were $1.09 per share on revenue of $19.53 billion. For the full year, earnings are expected to decline from $5.47 per share a year ago to $1.95 per share, while full-year revenue of $63.5 billion would decline 15% year over year.
The expected year-over-year decline of 26% and 65% declines in revenue and profits, respectively, are the main drivers for the pressure Intel stock has been under. The fact that full-year revenue is expected to decline 15% underscores why Intel wants to re-invent itself. The market wants to see evidence that the business can improve, that the company can stabilize revenues, while at the same time cutting operating costs. As has been the case, execution will be critical to the company’s success and the movement of the stock price.
In the third quarter, the company reported adjusted EPS of 59 cents per share beat estimates by 26 cents. Although Q3 revenue of $15.34 billion surpassed consensus estimates by more $36 million, it represented a year-over-year decline of more than 15%. “Despite the worsening economic conditions, we delivered solid results and made significant progress with our product and process execution during the quarter,” said Pat Gelsinger, Intel CEO.
Despite the optimism, it wasn’t as glowing as the top and bottom line beat suggested. Fundamentally, the company ended the quarter with $17 billion in net debt. This explains why cost-cutting is a major focus moving forward. On Thursday investors will want to see whether these areas show enough improvement to revive the stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.