Is a Beat in Store for Intel (INTC) This Earnings Season?

Intel INTC is slated to release second-quarter 2020 results on Jul 23.

The company expects second-quarter 2020 revenues of $18.5 billion. The Zacks Consensus Estimate for revenues is pegged at $18.54 billion, indicating an improvement of 12.4% from the year-ago quarter.

For the second quarter, Intel anticipates non-GAAP earnings of $1.10 per share. The Zacks Consensus Estimate for earnings, which is pegged at $1.11, has improved 0.9% in the past seven days. The figure suggests growth of 4.7% from the prior-year reported figure.

Notably, the company has topped earnings estimate in each of the trailing four quarters, the average beat being 17.37%.

Favorable ESP

Our proven model predicts an earnings beat for Intel this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Intel has an Earnings ESP of +3.13% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Factors to Note

Strength in its data center business, on account of growing adoption of cloud-based solutions amid the coronavirus crisis-induced work-from-home wave, is expected to have contributed to Intel’s second-quarter performance.

Further, coronavirus-induced work-from-home and online learning wave might have bolstered sales of processors utilized in enterprise laptops and data center servers. This, in turn, is anticipated to get reflected in the second-quarter revenues.

Notably, encouraging trend in PC shipments in the second quarter, driven by increased demand and improvement in the supply chain is likely to have benefited Client Computing Group (CCG) segment revenues. Per Gartner’s preliminary data, PC shipments in second-quarter 2020 improved 2.8% year over year to 64.8 million units.

Solid uptake of Xeon processors, which are integrated with Optane DC Persistent Memory solution may have driven the top line in the quarter to be reported. Notably, Intel’s Optane DC Persistent Memory modules are being leveraged by the likes of Oracle, SAP, Google, Microsoft, Baidu and Alibaba.

Intel Corporation Price and EPS Surprise

Intel Corporation Price and EPS Surprise

Intel Corporation price-eps-surprise | Intel Corporation Quote

Further, the chipmaker’s non-volatile memory business is likely to have benefited from momentum in Optane modules and improvement in NAND pricing trends. Also, growing demand for server solid state drives (SSD) in data centers, which has been driving growth in the NAND market, might have benefited the second quarter performance.

Talking about IoT businesses, Mobileye’s new design wins and increasing proliferation of IoT might have contributed to Intel’s second-quarter performance. However, impending global recession is likely to have affected IOTG end markets, especially retail and industrial. Further, lower automotive production due to lockdowns remained a concern for Mobileye.

Moreover, growing clout of Advanced Micro Devices’ AMD second generation of its EPYC processors is likely to have created pricing pressure and limited margin expansion. Also, in the data-center storage market, the company faces stiff competition from Micron and Western Digital, which is anticipated to have impacted second-quarter profitability.

Noteworthy Developments

Coronavirus crisis has compelled companies globally to alter their spending strategies. Intel isn’t immune to the trend. In fact, on Mar 24, Intel filed 8K with the SEC, announcing that it is suspending stock repurchases temporarily on account of the COVID-19 crisis.

Moreover, during the quarter under review, Intel and MaxLinear inked agreement, by which Intel will sell off its Home Gateway Platform Division. The all-cash deal, which is valued at $150 million, is subject to regulatory approvals and other customary closing conditions. The divestiture is anticipated to conclude in third-quarter 2020.

Nevertheless, strategic deals, involving portfolio expansion and acquisitions also continued in the second quarter. Intel rolled out third generation Xeon Scalable processors and other product enhancements to its hardware and software AI portfolio.

Moreover, the chipmaker announced 10th Gen Core vPro mobile and desktop PC processors to boost business productivity with improved connectivity and security features in the wake of work-from-home setting. The new processors are designed with an aim to augment computing innovation with advanced remote manageability capabilities.

Further, the semiconductor giant announced that it has acquired Moovit, a mobility-as-a-service (MaaS) solutions company, for approximately $900 million ($840 million net of Intel Capital equity gain).

Other Stocks to Consider

Here are a couple of other stocks you may consider as our proven model shows that these too have the right mix of elements to beat estimates this time:

Microchip Technology Incorporated MCHP has an Earnings ESP of +2.38% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Etsy, Inc. ETSY has an Earnings ESP of +23.66% and a Zacks Rank of 2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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