Source: PaxForex Premium Analytics Portal, Fundamental Insight
The preceding year has proven to be lucrative for Intel investors, witnessing a substantial 46% surge in the chipmaker's shares on the stock market. Notably, the stock experienced a 34% increase following the release of the company's third-quarter results on Oct. 26. Intel's robust financial performance, surpassing Wall Street's expectations in both revenue and earnings, along with optimistic guidance, fueled this surge.
Examining the driving forces behind Intel's recent stock rally prompts the question of its sustainability in the coming year.
Intel faced challenges due to the downturn in the personal computer (PC) market over the past couple of years, with PC shipments declining by 16.5% in 2022, and a continued 7.6% year-over-year decline in the third quarter of 2023, according to market research firm IDC. Given that Intel derives 55% of its revenue from selling processors for PCs through its client computing group (CCG), the consistent drop in PC sales explains the chipmaker's seven consecutive quarters of declining revenue on a year-over-year basis.
However, a closer analysis of the latest results suggests a turnaround in progress at Intel. In Q3, the company reported revenue of $14.2 billion, surpassing analysts' expectations of $13.6 billion. Furthermore, Intel's non-GAAP (adjusted) earnings increased by an impressive 11% year over year to $0.41 per share, significantly exceeding the consensus estimate of $0.22 per share. The adjusted operating margin also rose by 2.8 percentage points year over year to 13.6% in the last quarter.
The improved earnings are attributed to a stronger margin profile resulting from a recovery in the PC market. While PC sales continued to decline in Q3, the rate of decline slowed compared to the previous quarters, indicating a positive trend. Intel CEO Pat Gelsinger noted on the October earnings conference call that customers had completed their inventory burn in the first half of the year. With the PC market expected to grow in 2024, with shipments projected to increase by 3.7% to 261.4 million units, Intel's financial performance is anticipated to continue improving.
This positive outlook is reflected in Intel's fourth-quarter guidance, anticipating $15.1 billion in revenue at the midpoint of its guidance range. This represents an 8% improvement over the year-ago quarter when revenue was down 32% year over year to $14 billion. Intel expects non-GAAP earnings to reach $0.44 per share, a substantial improvement over the prior-year period's figure of $0.10 per share.
Given that Intel's significant end market is poised for recovery in 2024, it is understandable why Wall Street anticipates a considerable upswing in the company's revenue and earnings.
Intel's revenue is projected to experience a noteworthy 13% increase in 2024, reaching $56 billion, following an expected 21% drop this year. Additionally, the company's earnings are forecasted to double next year, reaching $1.90 per share.
The optimism regarding Intel's growth prospects is grounded in its Q4 guidance, which indicates a substantial surge in earnings. If the company meets Wall Street's earnings expectations, its stock price could potentially rise to nearly $52 over the next year, based on the Nasdaq-100 index's forward earnings multiple of 27.2. This would signify a 20% increase from current levels. However, the potential for even stronger gains exists, fueled by additional catalysts such as advancements in artificial intelligence (AI).
At present, Intel is trading at 24 times forward earnings, presenting investors with a favorable deal. Its valuation is more attractive than the Nasdaq-100's forward earnings multiple. This favorable comparison may not persist as the company's growth accelerates, making the current moment an opportune time for investors to consider this stock.
As long as the price is above 40.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 43.97
- Take Profit 1: 45.00
- Take Profit 2: 48.00
Alternative scenario:
If the level of 40.00 is brokendown, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 40.00
- Take Profit 1: 38.00
- Take Profit 2: 36.00
