Earnings season can come with some tricky surprises. Intel Corp. (NASDAQ: INTC) closed up 0.75% at $53.90 ahead of earnings, but the semiconductor and processor leader saw another very disappointing reaction in Friday’s post-earnings period.
Intel reported third-quarter earnings of $1.11 per share (EPS) and revenue of $18.33 billion. Refinitiv’s consensus estimates were $1.11 EPS and $18.25 billion in revenue.
Where the report and the reaction get more interesting was that Intel’s guidance for the fourth quarter of $1.10 EPS and $17.4 billion in revenue compare to consensus estimates of $1.08 per share and $17.39 billion. The news wire headlines even initially reported that Intel was raising its guidance.
The bar already was set low for Intel. After all, the prior closing price of $53.90 was down from a high of $69.29. Intel also was closer to $60 a share heading into its earnings disappointment in July.
Intel had noted that its chip sales were strong in the lower-end laptops, but a 7% drop in data center sales brought a serious concern as competition now looks even stronger. The company is still positive on its opportunities in artificial intelligence and machine learning, as well as edge computing and 5G networks.
The big downgrade came from BofA Securities. The firm cited that there is no easy fix to the manufacturing and competitive headwinds Intel faces. The firm’s prior Neutral rating was downgraded to Underperform, and the price objective was slashed to $45 from $60.
The big dilemma that BofA sees is Intel is just too large to become a fabless player, despite exploring options to use the foundry ecosystem (likely TSMC or Samsung) as a stopgap measure for its 7nm challenges. The firm noted that there is no clarity from Intel about when that decision will be made, whether the company partially or completely go fabless, nor for how long.
CFRA was one of the few firms that kept steady, maintaining its Hold rating and $52 price target. The independent research firm noted that Intel’s deeply discounted price-to-earnings of 10.9 times its 2021 estimate already reflects the personal computer exposure and rising competitive pressure it faces. The firm also raised its 2020 earnings target 1% to $4.90 per share but maintained expectations of $4.77 in 2021. In the data center group, CFRA noted positive ongoing cloud momentum but also that COVID-19 hurt its enterprise and government spending. Significant pricing pressure was noted as data center selling prices were down 15% while notebook prices were down 7%.
Other firms on Wall Street already have been cautious, and it is beginning to look like even the analysts who want to remain positive are throwing in the proverbial towel. After having lowered targets after the July earnings disappointment, another round of downgraded price targets was seen as follows:
- Credit Suisse maintained its Outperform rating but cut its target to $65 from $70.
- Cowen maintained its Market Perform rating but cut its target to $50 from $55.
- Mizuho maintained its Buy rating but cut its price target from $63 to $60.
- Morgan Stanley maintained its Equal Weight rating but cut its target to $61 from $56.
- Rosenblatt reiterated its Sell rating and lowered its target price from $45 to $40.
- Truist Securities maintained its Hold rating but cut its target to $51 from $61.
- UBS maintained its Buy rating but cut its target price from $67 to $62.
- Wedbush Securities reiterated it as Underweight and cut its target to $48 from $51.
Shares of Intel were trading down 10.6% at $48.15 on Friday morning. The 52-week range is $43.63 to $69.29, and the consensus target price was $56.59 ahead of these cuts.
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