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Should You Buy Intel (INTC) Stock Ahead of Earnings?

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Shares of Intel (INTC - Free Report) dipped marginally during Wednesday morning trading hours as stocks battled to overcome fears about rising Treasury yields and range-bound indexes. Intel is also facing unique pressure from investors who are concerned that the semiconductor market is in store for a correction, so its first quarter fiscal 2018 earnings report will carry plenty of weight on Thursday afternoon.

Intel is one of the largest semiconductor manufacturers in the world and serves as an important bellwether for the industry. If the company can post great results and strong guidance this week, it might inspire renewed optimism throughout the chip market.

But what exactly should investors expect from Intel’s latest report? Let’s take a closer look.

Latest Outlook and Valuation

According to our latest Zacks Consensus Estimates, analysts are calling for Intel to report adjusted earnings of $0.71 per share and total revenue of $15.05 billion. These results would represent year-over-year growth rates of 7.6% and 1.7%, respectively.

 

Just one day out from its report, Intel is trading at about 14.2x forward 12-month earnings. Over the past year, its Forward P/E has been as high as 14.8 and as low as 12.1. It has traded with a median forward earnings multiple of 13.9x in that time. The company’s industry peers are currently sporting an average Forward P/E of 18.1. Intel is trading at a discount to its industry, but investors have grown to expect this recently, and the stock is well within its typical valuation range.

Earnings ESP Whispers

Investors will also want to anticipate the likelihood that Intel surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Intel is currently sporting a Zacks Rank #3 (Hold) and an Earnings ESP of -0.7%. This means that the most recent estimates have been lower than the consensus. In other words, our model is not conclusively calling for a beat.

Surprise History

Another important thing to consider ahead of Intel’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. The firm has met or surpassed estimates in each of the trailing 16 quarters, so management clearly does a great job handling expectations.

We also judge the price effect of earnings announcements by comparing the closing price of the stock two days before the report and two days after the report. Intel has generated solid momentum recently, moving higher in three of these windows in a row.

Bottom Line

Intel still looks like a value stock heading into its report date, and if its most recent post-earnings windows are any indication, investors might be willing to reward the company if it announces great news. However, the key here will be guidance, so if semiconductor bears are correct in saying the current cycle is nearing an end, Intel could usher in more volatility.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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