Broader stock markets are starting to rollover and volatility is on the rise as the market moves into earning season. One stock that has particularly underperformed the broader averages is Intel Corporation (NASDAQ:INTC). Specifically, while the Nasdaq Composite Index is up 4% year-to-date, shares of Intel have crumbled over 19%. With the Personal Computer (PC) market crumbling down, Wall Street analysts are expressing very different views on Intel’s future.
Intel will post second quarter 2015 earnings after market close on July 15. The semiconductor company is expected post earnings per share of $0.51, down from $0.55 YoY, and revenue of $13.06 billion, down from $13.83 billion YoY.
Since 58.05% of Intel’s total revenue comes from the PC market, the steep drop in PC sales is to blame for such a fall. The company is one of the world’s largest providers of PC, and some investors fear that the age of PC is over.
On July 8, two research and advisory firms startled investors by reporting hostile PC numbers. The two firms, Gartner and International Data Corporation (IDC), painted a negative picture for the PC industry as a whole, estimating negative growth for every major PC hardware vendor. Specifically, Gartner recorded a 9.5% drop in PC sales from the previous year. Furthermore, IDC estimates that overall 2015 PC sales will decline by 11.8%.
Additionally, Intel has a large percentage of its sales in Asia, specifically in China. With the Chinese stock market melting down, Intel stock is left facing even more volatility.
Cowen & Co. analyst Timothy Arcuri weighed in on Intel on July 10 in light of the upcoming earnings announcement. He reiterated a Hold rating on the stock with a $33 price target, observing new unfavorable PC shipment numbers.
Arcuri comments, “CQ2:15 PC shipments fell 5% [quarter over quarter] and 10% [year-over-year] to 68.4M, 400bps below seasonal… and the worst H/H… in the last 10 years.” He continues that “CQ2 preliminary PC results suggest Intel’s PC client revenue could fall $300 – $400 million below our current CQ2:15 estimate… which could impact CQ2 EPS negatively by ~$0.03.”
When measured over a one-year horizon and no benchmark, Timothy Arcuri has an overall success rate of 53% recommending stocks, earning a +13.3% average return per recommendation.
Conversely, Roth Capital analyst Krishna Shankar is more optimistic on Intel, reiterating a Buy rating on the stock on July 10 with a $37 price target. The analyst believes that sales to large companies, such as Google, may be able to offset slowing sales to enterprise.
The analyst notes, “Intel continues to see strength in the datacenter segment… with healthy adoption of the new Grantley server platform.”
However, Shankar does note that Intel may face Macro challenges in Europe and Asia, which can potentially impact Data Center growth.
When measured over a one-year horizon and no benchmark, Krishna Shankar has an overall success rate of 47% recommending stocks, earning a +2.7% average return per recommendation.
On the other hand, Srini Pajjuri of CLSA weighed in on July 10, reiterating a Sell rating on stock, noting that Gartner and IDC’s reports should not go unnoticed.
The analyst is “modeling 18% [year-over-year] decline in [his] PC revenue for Intel to account for inventory build in 2Q14.” He further justifies the steep decline citing, “Looking ahead, channel inventories appear lean, but [he does] not expect much restocking given the weak demand.”
The analyst also points to Data Center trends, saying that they “appear OK for now though the recent commentary for QLogic suggests that there may be some risk to [his] 9% QoQ growth forecast for Q2.
When measured over a one-year horizon and no benchmark, Srini Pajjuri has an overall success rate of 33% recommending stocks, earning a -3.3% average loss per recommendation.
Out of 29 analysts polled by TipRanks, 16 analysts are bullish on Intel, 10 are neutral, and 3 are bearish. The average 12-month price target for Intel is $35.28, marking a 20.95% potential upside from where stock is currently trading. On average, the all-analyst consensus for Intel is Hold.
Cody Miecnikowski writes about stock market news. He can be reached at [email protected]