NTEL (INTC) 79 3/32. After the close yesterday, Intel (INTC) put out a press release stating that
they will report third quarter revenues 8% to 10% above the second quarter. INTC also said that
gross margins would be up two points from the second quarter level of 49%. In the conference call
after the second quarter numbers were released, INTC gave sufficient information (revenues, margins,
expenses) to show that they expected to earn about $0.73 this quarter. The data released yesterday
suggest they will earn $0.79 per share. This is clearly good news for the company, and the stock is
indicated to open 5 points higher at about 84. INTC stock had rallied from about 68 in late June to
over 90 in late August on the growing belief that their business was rebounding. It got pulled down
sharply in the recent market turmoil, and looks today to be recovering some of that ground. A rally in
INTC will boost the whole tech sector today, and upgrades from brokerage firms are likely over the
short-term. Before going overboard on this data, however, investors should recognize that even
though the data are better than INTC previously indicated, third quarter earnings will still be below
year ago profits of $0.88 per share. This will be the fourth straight quarter of year-over-year declines
in profits. A sequential revenue gain of 9% would mean that revenue is up about 5% from the year ago
quarter, which is decent, but not spectacular. Despite the fact that INTC's financials from a broad
perspective are still sluggish, the market is likely to jump on the sequential revenue gain as indication
that a new strong uptrend is starting. Whether that is true remains to be seen, as the problem of low
priced computers and the effect on their business persists. The data released yesterday is clearly good
news - compared to what had been expected. Now, that good news is in the market. INTC is now
positioned to post a year-over-year increase in fourth quarter profits compared to a weak year ago
period. That is what they will need to do in order to provide substantial upside for a stock that trades
at a price/earnings multiple of 26 while earnings are still down. |
