Intel Corporation (NASDAQ:INTC) is expected to report its second-quarter (Q2) earnings after the closing bell today.
Once a quarter, Intel management reports on the company’s earnings for the previous quarter. On a scheduled conference call, management outlines the company’s current state of affairs and offers guidance on its future business prospects. The conference call also serves as an opportunity for analysts to discuss the current results with management.
For INTC stock, the company’s quarterly earnings calls have had a history of causing significant volatility. Swings post-earnings can be significant for Intel stock, but investors can better prepare for the possible reaction by examining past earnings reactions.
Let’s take a closer look at what to expect in this report and what potential reaction the stock could experience following today’s earnings call…
What to Expect When Intel Reports
Examining Intel’s track record of earnings can give investors insight into the management’s ability to perform. The company has a history of surprising to the upside and beating reported earnings. Over the last 23 quarters, Intel beat earnings estimates 19 times, matched estimates twice, and missed earnings twice. The company boasts an impressive track record of beating earnings estimates 83% of the time, with an average earnings-per-share (EPS) beat of 12.7%. (Source: “Intel (INTC) Earnings,” Street Insider, last accessed July 20, 2016.)
According to Zachs Investment Research, based on 15 analysts’ forecasts, the current consensus EPS forecast for INTC stock’s second quarter is $0.53. Given Intel management’s history of beating on the bottom line, I expect the company to beat consensus earnings estimates for Q2.
INTC stock has had a history of volatility post-earnings. The three boxes highlighted below illustrate the volatility INTC stock experiences post-earnings.
Chart courtesy of www.StockCharts.com
- October 13, 2015: Intel reported EPS of $0.64, beating consensus estimates by $0.05. Post-earnings, INTC stock gapped down and closed the day up 2.4%.
- January 14, 2016: Intel reported EPS of $0.74, beating consensus estimates by $0.11. Post-earnings, INTC stock gapped down and closed the day 9.1% lower.
- April 19, 2016: Intel reported an earnings loss of $0.12, beating consensus estimates by $0.01. Post-earnings, INTC stock gapped down but closed the day up 1.3%.
The last three quarters were highlighted with beats on the bottom line.
The problem with the data is that there is no correlation between beating the bottom line and investors’ reaction. All three post-earnings reactions were only slightly different, with the exception of the January 14, 2016 report. On the other two reporting dates, INTC stock gapped lower and closed positive for the day.
Investors can use options to help quantify the level of volatility post-earnings. Options pricing for the July 20, 2016 contract are implying a one-day move post-earnings of seven percent. This translates into a reaction of up or down $2.40.
The price trend of INTC stock can be used to give some insight into the possible direction of the coming earnings reactions.
Chart courtesy of www.StockCharts.com
INTC stock started off 2016 in the red. By mid-February, shares were down 18.9%. In dramatic fashion, INTC stock has recouped all of its losses to start the year and is now trading positive on the year. The run up into earnings can be interpreted as a positive catalyst.
The long-term chart illustrates the pennant consolidation pattern that INTC stock has been trading in since late 2014. This pattern is usually a continuation pattern. The initial target generated from this pattern is $44.00.
Intel stock’s price chart is bullish and casts a bullish tone on the upcoming earnings reaction.
The Bottom Line on INTC Stock
Intel Corporation has a long record of beating on bottom-line estimates and I expect this to continue. Intel stock’s chart setup is bullish, so my bias is to the upside. I believe INTC stock will see an upside reaction of seven percent based on options volatility. My only hesitation is caused by the inconsistent reactions to the company’s past earnings beats.