(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Intel Corp.'s (INTC) stock remains nearly 8% off its high in June, when news of CEO Brian Krzanich's resignation sent the chipmaker's stock plunging. That news overshadowed the company's updated second-quarter guidance, which indicated that earnings would climb by 37.5% and revenue would climb by 16.5%.
Now, options traders are looking for shares of Intel to jump by 7% in the next three weeks following the earnings release Thursday after the close of trading.
A 7% Gain
The options set to expire on Aug. 17 are implying the stock rises or falls by about 6% from the $52.5 strike price. It places the stock in a trading range of $49.30 to $55.70 by expiration. The bets that Intel rises outnumber the wagers that it falls, by roughly 1.5 to 1, with the number of calls at approximately 16,500 contracts.
The $55 calls have seen an increase in activity, with the number of open call contracts rising by more than 50% since July 11 to 25,000 open contracts. The options trade at roughly $0.60 per contract, and a buyer of the calls would need the stock to rise by 6% from its current price of $52.50 to $55.60 to break even if holding the options until expiration. The open call contracts at the $56 strike price are approximately 19,000, trading for roughly $0.40 per contract. A buyer of those call options would need the stock to rise by about 7.5% to break even if held until expiration.
Options traders appear to be betting there will be upside to earnings and revenue estimates when the company reports its second-quarter results. Analysts are looking for earnings to rise by 34.5% to $0.97 per share, less than the company’s guidance. Meanwhile, forecasts are also calling for revenue to increase by nearly 14% to $16.8 billion, again just shy of the company’s guidance.
INTC EPS Estimates for Current Quarter data by YCharts
A History of Beats
Intel has managed to top revenue estimates for four quarters in a row, while earnings have beaten estimates each of the last eight quarters.
INTC Quarterly Actual EPS data by YCharts
It would seem bets are piling up that Intel will be able to post a strong earnings beat, sending shares higher, erasing most if not all of the losses the stock suffered at the start of June.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.