Intel Corporation (INTC): Low Expectations Lift Pressure On Earnings

Intel Corporation (INTC): Low Expectations Lift Pressure On Earnings
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Wedbush Securities analysts Betsy Van Hees and Ryan Jue rate Intel Corporation (NASDAQ:INTC) as Neutral and raise their price target from $23 to $27, as the tech giant is poised to release in-line financial results.

Intel’s earnings expectations

We believe with investors’ expectations set fairly low for an in-line print/guide and sentiment positive that there is little Intel Corporation (NASDAQ:INTC) can say to negatively impact the stock and on the flip side, drive the stock higher given it has increased 12% vs. the 5% move up in the SOX since Dec. While we remain very impressed with management’s new initiatives, we believe for Intel to outperform the market from here that we will need to see meaningful revenue contributions from these new initiatives and DCG to outpace declines in PCCG returning Intel back to strong Y/Y earnings and revenue growth.

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Expect largely in-line Q4 print

Q4 revenue guide of $13.7B +/- $500MM was below the Street and our initial estimates ($14B) as Intel noted PC customers were cautious, keeping inventories lean. We hosted our 9th semi-annual bus tour in Silicon Valley on Dec 11 & 12 and consistently heard that the one positive surprise thus far in the quarter had been PCs, which were slightly better, albeit coming off very beaten down expectations. We also estimate Taiwan ODM Q/Q notebook shipments in Q4 were primarily positive following a mixed Q3 with Quanta unit shipments up 10% Q/Q, Compal up 25% Q/Q, and Wistron down -4% Q/Q. Intel was confident on DCG demand for Q4 and our quarter end checks suggest this business will likely not disappoint. Therefore, we are adjusting our Q4 estimates in line with the Street.

Preliminary 2014 guidance metrics included revenue about flat Y/Y at roughly $52.6B with a backend-loaded 2H following a choppy 1H, driven by declines in PCs that will be somewhat offset by growth in datacenter and tablets. GM at midpoint of LT guidance (~60%), and spending as a percent of revenue, OM, and CapEx are to be about flat Y/Y. We don’t expect any changes to 2014 guidance provided at Intel’s analyst day and look for Q1 outlook largely in line with expectations. We are making modest adjustments to our Q1 and full-year 2014 estimates.

Intel’s valuation

Our new PT of $27 (from $23) is based on about a 12x (from 10x) multiple of our new 2015 GAAP EPS estimate of $1.95 plus $3.75 (unchanged) of cash per share vs. our previous valuation on our prior 2014 GAAP EPS estimate of $1.90.

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