Intel Q1 2020 Earnings Preview: Buy INTC Stock Amid the Coronavirus?
Zacks Investment Research | Apr 17, 2020 07:17AM ET
Intel INTC is set to release its Q1 fiscal 2020 earnings results on Thursday, April 23. That means it’s time to see what investors should expect from Intel amid the coronavirus, with its stock now up over 23% since March 23.
The Quick Story
Intel is the largest semiconductor company in the U.S. by revenue and it’s coming off a strong fourth quarter that was driven by data-center and PC demand. The historic chip powerhouse also upped its guidance and noted that it is set to benefit from the on-going expansion of cloud computing, big data, and more.
INTC, like the broader chip space, is poised to expand as part of the broader tech revolution that semiconductors support. “In 2019, we gained share in an expanded addressable market that demands more performance to process, move and store data,” CEO Bob Swan said in prepared Q4 remarks. “One year into our long-term financial plan, we have outperformed our revenue and EPS expectations.”
Coronavirus Impact?
The overall earnings outlook for the S&P 500 is quickly deteriorating, with many sectors set to see their profits sink. Wall Street and investors are now trying to understand how the coronavirus, which has brought many sectors of the economy to a halt, is set to impact the historically cyclical chip industry (also read: Is the Market Ahead of Itself? ).
That said, Intel and other firms could possibly see a boost in Q1 and Q2 as companies, schools, governments and more, quickly try to outfit their employees with laptops and beef up their cloud computing efforts as millions of people work remotely. In late March, Micron said it was experiencing solid demand from personal computer and data center customers.
Other Fundamentals
Intel stock has slightly outpaced the broader chip space over the last three years, up 68% vs. 61%. INTC shares are up around 3% in the last 12 months and are now just barely in the green for 2020, after they surged recently as part of the broader market comeback.
Intel closed regular trading Friday at $60.36 a share. This put it about 12% below its 52-week highs, which could give it more room to run if it is able to impress Wall Street and the current rally proves it has more legs.
Intel currently trades at a discount compared to its industry, which rests in the top 33% of our more than 250 Zacks industries and includes Nvidia TXN , and other big names. The stock also boasts “B” grades for Growth and Momentum in our Styles Scores system.
Get The News You Want
Last quarter, INTC announced that it raised its dividend by 5% on an annualized basis to $1.32 a share. Intel’s dividend yield currently rests at 2.19%. This tops the 10-year U.S. Treasury’s 0.64% and the S&P 500’s 2.01% average. Plus, Intel’s dividend payout appears sustainable, with a payout ratio of 26% right now.
The company’s stable payout ratio is even more important and reassuring since Intel announced last month that it will suspend stock buybacks, joining AT&T T and others. Intel wrote that the suspension of its buyback plan “is prudent given uncertainty regarding the length and severity of the pandemic” and noted that its balance sheet remained strong.
Bottom Line
Looking ahead, our Zacks estimates call for Intel’s first quarter sales to climb 16.8% to reach $18.75 billion, with its second quarter revenue projected to pop 10.2%. Meanwhile, its adjusted Q1 earnings are expected to surge nearly 44% to $1.28 a share and its second quarter EPS figure is projected to climb 18%.
Despite its strong outlook, Intel’s earnings revisions have trended in the wrong direction to help it hold a Zacks Rank #3 (Hold). Some investors might want to take a chance on Intel before earnings. But it is most likely better to wait for its actual results and guidance, given the coronavirus uncertainty.
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