(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Intel Corp. (INTC) has been one of the great American growth stories in modern history. Its dominance in the semiconductor industry has led it to become the crown jewel of the group. However, the company and the stock fell on tough times over the past year, with the equity plunging by as much as 25% in mid-2018 as global growth slowed along with demand for semiconductor components.
Now Robert Swan, the CEO, will try to steer the company through the slowdown. However, analysts see a bumpy ride in 2019 for Swan and Intel. That is because analysts currently see earnings for the company falling for the first time in years. It leaves the stock trading at a steep discount to its peers.
Earnings estimates are forecast to decline by nearly 2% in 2019 to $4.51 per share. Additionally, the company is facing expectations for no revenue in 2019 at $71.11 billion. The lack of growth for the company stems from recent delays in new products and rising competition from companies such as Advanced Micro Devices (AMD).
The problems for Intel extend past 2019, with earnings forecast to have an average compounded annual growth rate (CAGR) of 2.4% through the year 2021. Also, revenue is forecast to be extremely slow at a CAGR of only 2.2% during that time.
Cheap vs. Peers
The stock’s valuation reflects the weak growth outlook for the company. At a 2019 price to earnings ratio of 11.2, the stock is currently trading at nearly its lowest valuation since the beginning of 2016. The valuation is even low versus many of its peers. Among the top-25 holdings in the iShares PHLX Semiconductor ETF (SOXX), the average one-year forward PE ratio is 14.6, leaving Intel trading at a near 30% discount to the average of the group.
Options and Charts See The Shares Rising
The options, on the other hand, are more bullish on Intel and see the stock rising or falling by as much as 19% from the $52.5 strike price for expiration on January 17, 2020. It places the stock in a broad trading range of $42.55 to $62.45 by expiration.
However, the number of bets the stock rises massively outweigh the bearish bets, with the calls favored by over 5 to 1. Even more impressive is the nearly 50,000 open call contracts at the $60 strike price. A buyer of those calls would need the stock to rise to about $62.40 to earn a profit, an increase of 17.6%.
The chart for Intel also suggests the equity may continue to rise in the future. The stock is nearing a technical break out at $54.25. If the shares cross above that price, it could lead to a rise back to around $58 and its highs last seen in June.
While the fundamentals and expectations would suggest that Intel may continue to struggle in 2019, the options and the technical chart would indicate the worse may be over, with better days ahead.
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. 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 12 months. Past performance is not indicative of future performance.