Intel Corporation Inc. (INTC) is slated to announce its first quarter 2010 results on April 13, 2010, and analyst estimates for future periods have been going up.
Fourth Quarter Highlights
Intel reported very strong earnings in the fourth quarter, beating the Zacks Consensus Estimate by 6 cents. Excluding the $1.25 billion fine paid to Advanced Micro Devices (AMD) and other one-time items, earnings were 61 cents a share, or 27 cents higher than the Zacks Consensus.
Strength was across all product groups and geographies, although notebooks and servers were the major drivers. Atom products made significant headway, growing 46% from the year-ago period.
The stronger volumes combined with better mix, higher average selling prices and lower production costs enabled the company to generate strong margins and over $3 billion in cash flow.
During the fourth quarter conference call, management stated that revenues would be down over 8% in the first quarter and gross margins would be down around 4 percentage points. While operating expenses were guided down, this would still result in significant decline in operating margin.
The full-year forecast was also not too exciting. Consequently, analyst expectations average around 37 cents for the March quarter and $1.64 for the year. Earnings expectations for 2011 are around $1.80.
Agreement
Analyst opinion has turned increasingly positive over the last thirty days, with eight of the 40 analysts covering the stock making positive revisions for the upcoming quarter, 10 making positive revisions for fiscal 2010 and 9 for fiscal 2011. Roughly half the revisions have been made over the past 7 days.
There are a number of reasons for the positive sentiment regarding Intel. First, Intel is a beneficiary of the resurgence in corporate IT spending and the ongoing server refresh cycle, which should continue through 2010 and 2011.
Second, Intel has a compelling range of products, including the recently launched microprocessors that effectively expand its reach into the data center market. Third, pricing has been favorable for the company in recent months and product shortage is expected to drive prices higher. Fourth, Intel has been using its “tick-tock” strategy to consistently lower costs of production, which should lead to further expansion in margins.
Magnitude
The magnitude of revisions is significant, since the company reported its fourth quarter results. Overall, estimates for the upcoming quarter have gone up from 34 cents 90 days ago to 38 cents (current). There has been an increase of 1 cent over the past 30 days.
For fiscal 2010, estimates have gone up from $1.50 90 days ago to $1.67 (current). There has been a 1 cent revision over the past 7 days. For 2011, estimates have gone up from $1.68 90 days ago to $1.82 (current), with a 1 cent increase over the last 7 days.
Recommendation
We currently have an Outperform recommendation on the shares, given the company’s strong market position, product range, new offerings, margin expansion potential and the ability to generate strong cash flows on a very consistent basis.
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