Analysts Applaud Intel's Beat-And-Raise Q1 Earnings

Large-cap tech names posted strong quarterly results this earnings season, and Intel Corporation INTC was no exception.

The chip giant reported 13-percent revenue growth and a 32-percent increase in non-GAAP earnings per share Thursday; the company also raised its full-year revenue and earnings guidance.

The Analysts

• B. Riley FBR's Craig Ellis maintained a Buy rating on Intel and raised the price target from $55 to $65.
• Charter Equity Research's Edward Snyder reiterated his Buy rating.
• Credit Suisse analyst John Pitzer maintained his Outperform rating and lifted his price target from $60 to $65.
• KeyBanc Capital Markets analyst Michael McConnell continued to be Overweight on Intel's shares and raised his price target from $60 to $65.
• Morgan Stanley analyst Joseph Moore maintained his Equal-weight rating on Intel but lifted his price target from $43 to $54.
• Stifel analyst Kevin Cassidy maintained his Hold rating but raised his price target from $53 to $57.

B Riley FBR: More Positives Than Negatives 

The positives in Intel's report include sales outperformance in both Q1 and in Q2 guidance; robust server, PC and memory strength; a much lower operating expenditure margin; upward revisions to calendar 2018 sales guidance and free cash flow; and its capital return program, Ellis said. 

These factors — along with strong underlying server and PC unit growth — will ease negative sector sentiment, the analyst said.

Charter: Strong Performance In Seasonally Weak Quarter

Strength was evident across all of Intel's segments despite Q1 being typically weaker due to seasonality seasonal effects, Snyder said. The earnings beat came due to strong data center demand and lower operating expenses, the analyst said. 

Intel showed particular strength in the cloud and communications businesses, Snyder said. 

"Management stated that 10nm yields are improving more slowly than anticipated and that volume production is delayed until sometime in 2019," rather than the prior expectation of the second half of 2018, he said.

See also: 12 Semiconductor Stocks Morgan Stanley Is Watching This Week

Credit Suisse: Data Center Strength To Persist Through First Half 

The data center group strength that drove upside in the fourth quarter of 2017 will persist through at least the first half of 2018, Pitzer said. Data center revenue growth accelerated from 19.6 percent year-over-year in Q4 to 23.7 percent in Q1. 

That said, Q1 was not perfect, Pitzer said: ASC 606 contributed to 20-25 percent of upside and memory led to 15-20 percent upside. Capex increased and 10 nm volume production was pushed out, the analyst said. 

" ... Investors still massively underappreciate INTC's leverage to data even if NVIDIA Corporation NVDA runs away with AI," the analyst said.

KeyBanc Remains Intel Buyer 

McConnell said he remains a buyer of Intel shares for the following reasons: 

• Expectations that data center revenue growth acceleration from the Purley product cycle will begin in 2018.
• The guidance for the client computing group and data center segments.
• Peripheral growth opportunities in networking, memory and IoT.
• An attractive dividend yield.

Morgan Stanley: 10 nm Delay A Negative

Intel showed expected strength in cloud, surprising performance in enterprise and data center and accounting changes that moved PC revenue higher, Moore said. 

"Amid the IT spending surge, there are some qualitative negatives, as 10 nm is pushed out for a second straight year," the analyst said.

Stifel: Expect More Of The Same Growth Drivers In Q2 

Along with data center strength, Intel's growth in the non-volatile solutions and programmable solutions groups was also impressive, Cassidy said. 

"[The] expectations for Q2 are for more of the same growth drivers, with [the cost of goods sold] from the low-volume 10 nm process node expected to be a drag on gross margin." 

Related Link:

Bernstein's Bearish Stance On Intel No Longer Justified

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