Betsy Van Hees and Ryan Jue, CFA of Wedbush discuss their thoughts on Intel Corporation (NASDAQ:INTC) in a recent note to clients. Below is the executive summary.

Intel Corporation (NASDAQ:INTC): Q4 Results & Outlook Mixed As Stabilizing PC Markets Were Offset By Unexpected Weakness in Enterprise

Intel Corporation

  • What to do with the stock. Intel Corporation (NASDAQ:INTC) reported mixed Q4 results with revenue beating but GAAP EPS a penny below expectations primarily due to higher OpEx. Even though Q1 revenue guide was in-line with the Street, the midpoint of guidance ranges implies a miss to GAAP EPS expectations. Intel Corporation (NASDAQ:INTC)  reiterated roughly flat Y/Y revenue guide for 2014; however, earnings are starting off the year at a much lower than expected pace with the 2H:14 continuing to look very backend loaded. While the 4% dividend yield remains very attractive, particularly for investors with a longer-term horizon, we recommend investors let the stock settle out as we look for better visibility on the revenue trajectory from DCG and meaningful revenue contributions from Intel’s new initiatives.
  • Mixed Q4 results with top line beating, but GAAP EPS a penny below. Revenue of $13.83B was above the midpoint of the guidance range of $13.7B +/- $500MM (-2% to 5% Q/Q) and the Street and our estimates of $13.7B, but GAAP EPS of $0.51 was a penny below the Street and our estimate of $0.52. INTC noted the PC market was stabilizing in the 2H with Q4 PC units up Y/Y, but noted enterprise in DCG fell short of expectations due to a lower rate of recovery among corporate buyers. Q4 GM slightly decreased by 40bps to 62% from 62.4% in Q3 above guidance of 61% +/- a couple points and Q4 OpEx increased $120MM Q/Q to $4.83B from $4.71B in Q3 well above the guidance of $4.7B.
  • Intel Corporation (NASDAQ:INTC) guides Q1 revenue in-line, but implied GAAP EPS below; reiterates 2014 revenue outlook of flat Y/Y. Q1 revenue outlook of $13.8B +/- $500MM (-11% to -4% Q/Q) was in-line with the Street and our estimates of $12.8B and historical seasonality. Q1 GM was guided to be 59%, +/- a couple points, down 300bps Q/Q and below our estimate of 59.5% and OpEx to be approximately $4.8B higher than our estimate of $4.67B. We estimate the midpoint of Q1 guidance implies a GAAP EPS of $0.36. Excluding the $200MM restructuring charge, we estimate the midpoint implies an EPS of $0.39 still below the Street and our estimates of $0.42. INTC reiterated its 2014 revenue outlook of roughly flat Y/Y. We are adjusting our Q1 and full year 2014 and 2015 estimates, (see Figure: 2).
  • Maintain NEUTRAL rating and $27PT. Our 12-month PT of $27 (unchanged) is based upon about a 12x (unchanged) multiple of our 2015 GAAP EPS estimate of $1.90 (from $1.95) plus $3.94 (from $3.75) of cash per share.