Intel Q4 preview: Where next for Intel stock?

When will Intel report Q4 earnings?

Intel will release fourth quarter earnings on Wednesday January 26.

Intel Q4 earnings preview

Wall Street forecasts Intel’s GAAP and non-GAAP revenue in the fourth quarter will come in at $18.3 billion. That would be down from the $18.9 billion in non-GAAP revenue and $20.0 billion in GAAP revenue reported the year before.

The main drag on Intel’s topline is expected to come from its business supplying components for PCs, which accounts for over half of Intel’s total revenue. Analysts are forecasting a 1.9% year-on-year drop in sales. There is a chance Intel could surprise here if it has been able to meet the rise in demand whilst others struggle. CEO Pat Gelsinger said in October that ‘Intel has the unique breadth and scale to lead’ the recovery in supplies amid the global chip shortage. Its memory chip division is also expected to report a 4% fall.

There will be brighter spots in Intel’s smaller units. Demand from its higher-margin data center division, its second largest segment in terms of sales, should continue to rise with analysts forecasting a 10% jump and its smaller Internet-of-Things division is anticipated to report a 53% rise. Its other units, including its self-driving automobile system Mobileye, are also set to report strong double-digit growth.

Notably, Intel announced it plans to spin-off Mobileye through an initial public offering of the firm. The company has said Mobileye will report around a 40% jump in revenue during 2021, with the unit now serving over 30 automakers around the world. Intel plans to maintain a majority stake, so will remain responsible for forming its growth strategy. The spin-off is partly aimed at unlocking the value of the business following the poor performance delivered by Intel shares in recent years.

Analysts are expecting adjusted EPS will plunge to $0.90 from $1.52 the year before, while reported EPS at the bottom-line will follow lower to $0.83 from $1.42.

Intel is targeting annual adjusted EPS of $5.28 and reported EPS of $4.50. If achieved, that would be down from the $5.30 and $4.94 reported, respectively, in 2020. The current consensus shows analysts expect Intel to beat expectations over the full year.

Intel should also provide the first glimpse into what to expect in 2022, including guidance for the first quarter of the year. This will provide insight into how the company’s outlook fares against market expectations. Analysts currently expect Intel to target non-GAAP revenue of $17.4 billion, GAAP revenue of $17.7 billion, adjusted EPS of $0.86 and reported EPS of $0.74 in the first three months of 2022.

The outlook will be closely-watched, particularly around profitability as margins have contracted in recent years, especially as Intel ramps-up spending on building its own fabrication foundries and boosts budgets so it can catch up on ground lost to competitors such as NVIDIA and AMD, as well as Asian rivals TSMC and Samsung, in recent years. For example, we saw Intel rebrand the way it names its most-advanced chips after having to delay the release of its 7-nanometre chips, which are not expected to be out until 2023, causing it to lose appeal to rivals that have already introduced the technology. In fact, some are already selling more advanced 5-nanometre chips.

This has seen Intel shares significantly underperform its peers. While the PHLX Semiconductor Index has rallied over 181% in the past three years, Intel shares have booked a tepid 14% rise.

Intel is currently rolling out a new strategy named IDM 2.0, which aims to shuffle the way Intel operates in the market. The strategy is underpinned by three major moves. The first is to build-out capacity of its own factories to remain a leader in chip and process technology. The second is to increase the use of external foundries that it already uses to make everything from communications and connectivity products to graphics and chipsets. The third is to enter the foundry space itself so it can make chips for those without their own fabrication plants and plug the gap between supply and demand in the market. The key question threatening the investment case for Intel is how this revamp will impact margins and profitability over the coming years.

This will be the first set of results to be released since David Zinser took over as chief financial officer, having taken up the role just a few days ago to replace George Davis, who is retiring.

Where next for INTC stock?

Intel shares had showed signs of trending higher since the middle of December but have found lower ground since hitting a ceiling of $56 last week.

Having fallen through the 100 day sma, the price is now testing the $52 level of resistance turned support that surfaced in the last few trading days of 2021. Trading could be interesting over the next few days. We have seen signs of a three black crow formation which, if confirmed, will support the recent reversal and signal further downside. The 50-day sma trades below the 100-day sma, which in turn is below the 200-day sma, providing a bearish signal for the stock, supported by the RSI’s recent slip into bearish territory.

If the downtrend that has gained traction in the last seven trading sessions continues, we could see the stock slip toward the 50-day sma at $51. A move below there could see it fall to as low as $48, the 2021 low.

The 200-day sma of $54 remains the immediate upside target for Intel before it can start to target the $56 ceiling. Any break above there opens the door to the resistance level of $58 seen throughout May last year.

A number of brokers have raised their target price on Intel shares in recent weeks, although the overall view remains mixed. The majority believe Intel is currently a Hold and the average target price among the 48 brokers covering the stock of $55.84 implies there is 4% potential upside from the current share price.

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