With weaker than expected forward guidance, we recommend prospective investors wait for a wider margin of safety.
Following a fleeting recovery in the PC space during Intel
’s third quarter, the firm’s forward guidance implied a reversion to the weakness to which we have become accustomed. Coupled with persistent declines in data center-related enterprise spending, the company’s solid quarterly results failed to assuage investors, as shares fell considerably during after-hours trading. We continue to forecast a secular decline in PCs in the low-single digits, offset by growth in the data center, but it appears that Intel’s previous guidance of a 15% compound annual growth rate for the latter isn’t tenable. We are maintaining our $31 fair value estimate and wide moat rating for this chip leader, and recommend prospective investors wait for a wider margin of safety.
Abhinav Davuluri is a senior equity analyst for Morningstar.
Third-quarter sales were the highest ever for the company, at nearly $15.8 billion, up 9% year over year. The firm benefited from a short-term replenishment cycle of PC supply chain inventory, as reported in mid-September in a positive announcement. As a result, client computing group, or CCG, revenue, which includes PC and mobile-related products, rose 4.5% from the period last year. In addition to the inventory build, we note these results are consistent with Intel’s modem win in certain Apple iPhone 7 iterations. The PC volume increase and richer product mix also benefited margins in the segment, with CCG operating margins up to 37% from 29% last year.
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