What Will Intel Do After This Earnings Release?

With shares of Intel (NASDAQ:INTC) trading around $25, is INTC an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Intel designs and manufactures integrated digital technology platforms, including microprocessors and chipsets. The company sells these platforms primarily to original equipment manufacturers, original design manufacturers, and industrial and communications equipment manufacturers in the computing and communications industries. Intel’s platforms are used in a range of applications such as personal computers, data centers, tablets, smartphones, automobiles, automated factory systems, and medical devices.

In the final quarter of 2013, profits at the Santa Clara, California-based chipmaker Intel rose. The company’s stronger results and industry data both suggest the struggling personal computer market has begun to stabilize. Early evidence that the declines in PC sales had reached bottom gave Intel investors faith in the company’s future financial health, and they responded by bidding shares up 13 percent; the stock advanced more than 28 percent throughout 2013. But the fact that the chipmaker gave disappointing revenue guidance for 2014 concerned investors, causing shares to drop as much as 3 percent following the release of earnings on Thursday after the markets closed. Even company CEO Brian Krzanich noted in the earnings press release that Intel “had a solid fourth-quarter.”

A solid quarter for Intel meant that the PC market was showing “signs of stabilization” and that the company had experienced “financial growth from a year ago,” according to Krzanich. For the fourth-quarter, Intel’s financial growth amounted to a 6.4 percent increase in net income. Net income totaled $2.63 billion, or 51 cents per share, missing Wall Street’s bottom-line forecast, while revenue rose to $13.83 billion from $13.48 billion. Analysts had expected Intel to earn 52 cents per share on revenue of $13.7 billion.

T = Technicals on the Stock Chart Are Mixed

Intel stock has not made significant progress in the last several years. The stock is currently pulling back and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Intel is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

INTC

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Intel options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Intel options

21.16%

6%

3%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

February Options

Flat

Average

March Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Intel’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Intel look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

5.33%

48.72%

-27.78%

-24.53%

Revenue Growth (Y-O-Y)

2.60%

5.47%

-5.11%

-2.53%

Earnings Reaction

-2.60%*

1.32%

-3.76%

0.04%

Intel has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been optimistic about Intel’s recent earnings announcements.

* As of this writing

P =Weak Relative Performance Versus Peers and Sector

How has Intel stock done relative to its peers, AMD (NYSE:AMD), NVIDIA (NASDAQ:NVDA), Texas Instruments (NASDAQ:TXN), and sector?

Intel

AMD

NVIDIA

Texas Instruments

Sector

Year-to-Date Return

-1.64%

9.43%

-0.12%

-1.02%

2.66%

Intel has been a poor relative performer, year-to-date.

Conclusion

Intel is a developer of technology products such as microprocessors, chipsets, and software, and distributes them to companies and consumers around the world. The company’s stronger results for the final fourth quarter of 2013 and industry data both suggest the struggling personal computer market has begun to stabilize. The stock has not made significant progress in the last several years and is currently pulling back. Over the last four quarters, earnings and revenues have been rising which has left investors optimistic about recent earnings announcements. Relative to its peers and sector, Intel has been a weak year-to-date performer. WAIT AND SEE what Intel does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More From Wall St. Cheat Sheet: