Intel Disappoints, Or Did They?
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If the last couple days of trading are any indication, both analysts and investors are finding it difficult to grab hold of much in the way of positives with Intel (NASDAQ: INTC). Since Tuesday’s Q1 announcement trading volume has been about 2.5 times average, and not much of it has been good. Though still up for the year, more and more people seem to be jumping off the Intel bandwagon, and that’s a shame. A closer look at not only Q1 results but what to expect for the balance of 2012 should have value-hungry investors absolutely salivating.
Though the first quarter of 2012 came in above expectations in most key areas, Intel stock continues its modest downward trend. Most analysts expected earnings to come in around $0.50 a share on revenues of $12.84 billion. Intel – as is their usual practice – once again narrowly beat expectations with $0.53 in earnings on $12.9 billion in Q1 revenue. As mentioned in prior articles Intel is nothing if not (in)famous for massaging their numbers. Either that or the fact the company always seems to just beat expectations – every quarter it seems – is one heck of a coincidence.
Regardless, beating the Street’s guesstimates is usually enough to at least appease shareholders and avoid downward pressure – but not Intel. The culprit? Likely the quarter-vs.-quarter comparisons which at first glance aren’t necessarily pretty. For example – revenue was a full $1 billion less in 2012, margins dropped 0.3% and operating income was down a whopping 16% vs. last year. Not surprisingly given those numbers earnings also took a big hit, dropping 18% quarter-over-quarter.
With all of this – and most other areas of Intel’s financial statement look about the same – it’s no wonder the stock is feeling pressure. Ah, but let's take a closer look.
Sifting through the financial muck a few things stand out that once again point to Intel as one of the best values in what is an industry chock full of them. Even as investors await the pending earnings announcement from smaller rival Advanced Micro Devices (NYSE: AMD) and Texas Instruments climbs after recently announcing the decision to pay stockholders a $0.17 a share dividend – Intel remains the cheapest of the bunch by book value and earnings multiples.
But wait, there’s more - Q2 earnings guidance is right on target (in other words they’ll probably beat it), CEO Paul Otellini and team are expecting a slightly better tax rate for the year and smartphones should hit the market in Q2. Nearly everyone agrees that strength in the server market will continue and should more than offset flat to lower PC chip sales. And let’s not forget Intel bought back $1.5 billion in stock in Q1 and still pays a 3% dividend – one of the highest in the sector.
But the coup de grace? There was 1 less week in the recently announced quarter vs. Q1 of 2011 – 13 instead of 14 – and that should at least be a consideration when evaluating results. A 14% (give or take) decrease in revenue-generating opportunities is significant, but seems to have been ignored by a lot of investors.
When it’s all said and done not much has changed – Intel remains one of the best bargains in any sector. The 3% dividend yield is just icing on the cake – the real returns will come as we move further into 2012 and beyond.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article. Motley Fool newsletter services recommend Intel. The Motley Fool owns shares of Intel. timbrugger has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.