We expect Intel Corporation INTC to beat expectations when it reports fourth-quarter 2016 results on Jan 26.
Why a Likely Positive Surprise?
Our proven model shows that Intel is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Intel’s Earnings ESP stands at +2.67%. This is because the company’s Most Accurate estimate is 77 cents, while the Zacks Consensus Estimate is pegged lower at 75 cents. A favorable ESP serves as a meaningful and leading indicator of a likely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Intel currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 has a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Intel’s Zacks Rank #3 and +2.67% ESP makes us reasonably optimistic of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intel Corp. Price and EPS Surprise
Intel Corp. Price and EPS Surprise | Intel Corp. Quote
What is Driving the Better-than-Expected Earnings?
We note that Intel has posted positive earnings surprise of 12.14% in the trailing four quarters. Intel’s growing focus into areas with better growth prospects, such as the artificial intelligence (AI) and Internet of Things (IoT) businesses are key catalysts.
Autonomous car driving also presents a significant growth opportunity for the company. During the fourth-quarter, Intel created a new division called Automated Driving Group (ADG), which focuses on this fast-emerging market. Reportedly, the company has also won self-driving car deals worth $1 billion in 2016. Most prominent among them is the partnership with German carmaker BMW and Mobileye for developing self-driving car technology.
Intel has said that it is currently involved in 30 vehicle programs, but that number would swell to 49 by 2020. Moreover, the company’s venture capital division will invest $250 million over the next two years into autonomous driving technology. The fund will support the development of self driving and other technology (connectivity, communication, context awareness, deep learning, artificial intelligence (AI), safety and security) for cars globally.
The recent acquisition of 15% stake at high-precision digital mapping and location based services provider HERE will expand its presence in the automated driving technology market and pose a challenge to the dominance of NVIDIA NVDA. Further, strategic acquisitions like Yogitech, Arynga and Itseez have expanded Intel’s capabilities in the security and machine learning technology market.
Although Intel’s shares (up 24.8%) have underperformed the Zacks Semiconductor General industry (up 49.7%) in the last one year, we believe that the investments in IoT, security and memory (NAND flash chips) will help the stock rebound in 2017. Moreover, stabilising PC shipment trend as witnessed in the fourth-quarter 2016 is positive for the company.