Friday, April 24, 2020

Investors Chip Away Intel’s Stock Despite Q1 Beat

Tags

What’s happening: Shares of Intel Corporation nosedived 6% in extended trading on Thursday, even as the chipmaker reported its first-quarter results ahead of expectations.

What happened: The Santa Clara, California-based company delivered stronger-than-expected results, benefiting from the work-from-home trends. Intel reported growth in revenues and earnings, at a time when most companies are witnessing a decline on both fronts.

Investors chose to shrug off these strong results, sending Intel’s shares sharply lower in after-hours trading yesterday. In fact, the stock continued its downturn today, losing almost 5% in the pre-market session.

  • Intel’s revenue grew 23% to $19.8 billion, beating the consensus estimate of $18.67 billion.
  • Adjusted earnings improved to $1.45 per share, from 89 cents per share in the same quarter last year. The latest figure also handsomely exceeded the consensus view of $1.28 a share.
  • The company’s data center business exploded during the quarter, with 43% revenue growth, while the client computing business grew sales by 14%.

Why it matters: Intel witnessed strong sales with stay-at-home orders lifting demand for computers. Despite the robust results, investors remained concerned about Intel’s prospects for the remainder of the year, with management withdrawing the guidance for the full year citing coronavirus-related uncertainty.

The coronavirus pandemic has had a marked impact on the semiconductor industry, as lockdowns have disrupted global supply chains. Moreover, Intel had to temporarily halt some projects due to coronavirus-related restrictions.

The world’s largest semiconductor maker issued a healthy sales forecast for the second quarter, while guiding to disappointing profits. The profit guidance fuelled doubts of a decline in spending and slowdown in businesses weighing on Intel’s prospects for the rest of the year.

Moreover, Intel indicated that the coronavirus-driven surge in demand may peak soon and demand could weaken in the back half of 2020.

The company suspended its share buybacks in March and sold $10 billion in debt to maintain liquidity. “At some point we’re going to see the recession start to impact demand for PCs,” CFO George Davis warned.

What to watch: With Intel’s stock gaining 19% over the past month, some pressure witnessed yesterday and today may be due to profit taking. With management expressing uncertainty about business prospects in 2020, investors are hoping for news of factors that can support sales. Intel is readying its Tiger Lake chips for the PC market and announced plans to begin selling this in the third quarter. Markets will also look out for news related to Intel’s manufacturing operations.

The Markets Today

     

US stocks will be in focus today, ahead of economic data scheduled for later in the day.

Context: US stocks closed mostly unchanged on Thursday, after witnessing heavy volatility earlier in the session. Markets rose sharply only to give back most of the gains following reports of disappointing results from experimental drug intended to treat coronavirus.

Details: The Financial Times reported that that Gilead’s drug remdesivir was not able to improve the condition of patients suffering from COVID-19. However, the drug maker said that results were erroneously published on the WHO (World Health Organization) website. While this was removed later, the damage had already been done.

Investors also digested disappointing economic data earlier in the day. Around 4.4 million Americans filed for jobless claims for the first time in the latest week. The figure was worse than the expectation of 4 million claims. Economists project that this might push the unemployment rate to between 15% and 20%. Service sector PMI plummeted to its lowest level in April, while manufacturing PMI also fell to an 11-year low.

Some recovery in crude prices supported US indices on Thursday, pushing the S&P 500 energy sector higher by 3.3%.

After rising as high as 23,885.36 earlier in the session, the Dow gave up most of the gains to settle higher by merely 39.44 points at 23,515.26. The S&P 500 slipped 0.05% at 2,797.80, while the Nasdaq 100 settled unchanged at 8,494.75.

Shares of Domino’s Pizza dropped 3.7% despite the company exceeding first-quarter expectations for earnings and sales. Hershey’s shares fell 4.5% after the company missed earnings estimates. Shares of Eli Lilly & Co. gained over 2% after the company posted upbeat quarterly results.

What to watch: The White House cleared a $484 billion spending package late Thursday for helping small businesses in the country. However, markets could trade cautiously today, with stock futures trading mostly flat.

Investors await the economic reports scheduled for release today. New orders for durable goods, which rose 1.2% in February, are expected to plunge sharply by 11.9% in March. The University of Michigan's consumer sentiment index is projected to drop to 68 in April, versus a reading of 89.1 in March.

Other Markets: European indices were trading lower at 9:00a.m. GMT, with the FTSE 100, German 30 and French 40 down by 1.3%, 1.7% and 1.5%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Mexico’s overall index of economic activity, India’s deposit growth, foreign exchange reserves and bank loan growth, Brazil’s current account, foreign direct investment and business confidence, Russia’s unemployment rate and corporate profits, Canada’s government budget value as well as the US Baker Hughes crude oil rigs.