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Intel is
scheduled to report fourth quarter 2008 results after the market
closes on Thursday, January 15. Based on our analysis, we at
EarningsPreview.com are expecting INTC to report mixed
results that fail to meet Wall Street’s recently reduced
expectations.
Analyst
Expectations
We are
forecasting revenues of $8.2 billion and EPS of $.05. This would
represent a 23% decline in revenues from last year’s $10.7
billion in the same period. The current analyst consensus calls
for revenues of $8.3 billion and $.10 EPS. On January 7, the
company pre-announced revenue of $8.2 billion (vs. prior
guidance of $8.7 – 9.3 billion).
It’s
obvious that the macro economic environment continues to
deteriorate. Intel cited further weakness in end demand and
inventory reduction within the PC supply chain as the reasons
for further reducing revenue estimates.
With
demand declining sharply, we believe Intel’s likely to
experience excess inventory build up. This glut of inventory
along with declining customer demand will put downward pressure
on margins through the remainder of 2009.
Despite
the gloomy economic outlook, we still expect Intel to remain
profitable in 2009. The declining prices on personal computers (PC’s)
will help stimulate demand from both businesses and consumers
even in a bad economy.
Share
Performance
Intel's
shares are down 42% from their 52-week of $25.29 in May 2008. In
2008, their shares dropped 44% marking it as one of the poorer
performers of the Dow Jones index. However, since hitting a new
52-week low in November, the stock has rallied 19%.
Valuation
Shares are
now trading at 20x consensus 2009 EPS estimates. 2009 consensus
estimates will likely come down following the earnings release
and we see no real catalysts for the share price to go up in the
near term. In fact, we would expect the company to re-test their
52-week low of $12 in the coming months.
Recommendation:
Sell with a $12 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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