(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of Intel Corp. (INTC) have plunged by 18% from their June highs on investor pessimism about the company's product line and growth. Now, some options traders are betting the chipmaker's shares will rise by almost 8% by the end of the year just as the company's earnings outlook starts to improve. (See: Why Intel's Stock May See a Massive Rebound.)
Analysts have raised their consensus forecast for Intel's third-quarter results coming at the end of October. On September 28, Intel announced that it was reaffirming its full-year revenue guidance. The company said it was investing an additional $1 billion on 2018 capital expenditures while also making headway on the production of its 10-nanometer chip.
Some options traders are betting the stock will rebound back to $51 by expiration on December 21. The $49 calls have seen a significant increase in open interest to over 22,000 contracts as of October 1, an 11-fold increase in volume since September 28. For the buyer of the calls to earn a profit, the stock would need to rise by about 7.5% to $50.30 by expiration.
Strong Results Coming
One reason for traders' bets is that analysts see the company delivering strong third quarter results. They estimate the company will boost earnings by almost 14% on revenue growth of over 12% to $18.1 billion. Analysts have been boosting their earnings estimates for the quarter since the start of July by over 7%, while revenue estimates have climbed by almost 3%.
Full-year growth also looks strong. Analysts expect earnings to rise by over 20% on revenue growth of almost 11%.
There are caution signs ahead. Despite the strong growth in 2018, analysts see it slowing sharply in 2019 and 2020. (See: Why Intel's Bear Market Plunge May Steepen.)
That hasn't stopped analysts from being optimistic short term. They have a price target on Intel of $56, which is 20% higher than today even though that target has fallen since July. That target may end up being way too optimistic if Intel's growth fails to extend beyond this year.
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.