Tuesday, October 13, 2009

Big quarter, bigger guidance at Intel (INTC)

Wow. Intel (INTC) reported earnings of about 34cents per share, well ahead of the street consensus at 28cents. Unlike many earnings "beats" as of late, revenue came in higher than expected. That said, results are down year over year.

Gross margin came in 2% higher than expected. While companies like Johnson & Johnson beat earnings estimates BECAUSE of lower rates, Intel's tax rate came in 4points higher than expected, so they "kinda" beat by even more than the headline number.

Best part is the 4th quarter guidance:

-->>Revenue: $10.1 billion, plus or minus $400 million.
-->>Gross margin percentage: 62 percent, plus or minus 3 percentage points.
-->>Spending (R&D plus MG&A): Approximately $2.9 billion.
-->>Tax rate: Approximately 26 percent.

Doing some math gets me to about 44cents for the December quarter, while the consensus estimate is at 34cents. Take the beat today and the raised guidance for next quarter and the full year estimate goes from 66cents to 82cents per share. Certainly doesn't sound cheap with the stock at 20.50, but the market is looking past this year's results.

Say Intel beats estimates for 2010, and does Free Cash Flow of 7.4billion. That would be a FCFY (Free Cash Flow Yield) of about 7% if I generously deduct cash and trading assets from the $114billion market value. There's maybe a few dollars of short term upside from here, but I think it will be a little while until the near-30 stock price of a few years ago can be justified.

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