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Intel Stock Could Jump after Earnings


Oct. 16 2019, Published 5:38 p.m. ET

Shares of Intel Corporation (INTC) have returned 0.2% over the past month, which shows that Intel stock is outperforming the US semiconductor industry’s loss of 1.7% at the same time. Intel is slated to report its third-quarter earnings on October 24 before the market opens.

Currently, Wall Street analysts expect INTC‘s earnings to grow 5.61% in the third quarter to $1.17 per share. However, analysts forecast that its Q3 revenue could fall to $ 18.04 billion. This estimate implies a decline of 5.87% on a year-over-year basis.

Some options traders are actively betting that INTC stock will head higher, rising at least 5% in the coming weeks and months. Below, we’ll take a closer look at Intel’s valuation and options activity. Let’s see if INTC is a good choice for investors at its current levels.

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Why valuation is appealing for Intel

Intel stock is trading at 12.82x its fiscal 2019 earnings estimates of 4.11. So Intel looks undervalued compared to the sector’s median forward PE ratio of 22.91x. The company’s PE ratio has been as high as 49.22x and as low as 8.5x, with a median of 13.45x. If Intel starts trading closer to the semiconductor sector’s median levels, the price for Intel stock could be around $55.3—a gain of 6% from the current levels.

In addition, Intel trades with a PEG (price-to-earnings growth) ratio of 0.22x. This number suggests that the stock is discounted at present, given a PEG ratio of 1–1.5 for a fairly valued stock.

However, according to Simply Wall St, Intel is fairly valued. This assessment is based on the future cash flow value of $46.45, compared to the $52.65 price at the moment of writing. 

Options analysis for Intel stock

The implied volatility for the options, at a $53.00 strike price that expires on October 25, stands at 41.11 %. This figure means investors are expecting an event that could cause moderate movement in one direction or another.

If you look at the October 25 options, you’ll see a bid/ask for the $53.00 call option of $1.10/$1.12. Also, I see a bid/ask for the $53.00 put option of $1.61/$1.63. Bear in mind the options strike closest to INTC’s previous closing price of $52.45. You can then calculate the expected price move using the mid-prices of these options:

1.62 (53.00 Put) + 1.11 (53.00 Call) = 2.73/52.45 = 5.2%

As you can see, the options imply that Intel stock could rise or fall by ~5% by the October expirations from the $53.00 strike price, using the long straddle strategy. Our assessment would place the stock in a trading range of $49.82–$55.07 by the expiration date.

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Moreover, the calls at the $53.00 strike price outweigh the put options about 4:1, with 1,951 open calls to 541 open puts. Additionally, the calls at the $54.00 strike price outweigh the put options about 33 to 1, with 10,743 open calls to just 315 open puts. A buyer of the $54.00 strike price calls would need the stock to rise to around $54.70 by the expiration date.

Bullish options bets

The options, which expire on November 15, saw increased call buying on Wednesday, October 16. The open interest for the $55.00 calls rose by 5,579 contracts to a total of 42,376 open contracts (source: barchart.com). A buyer of those calls would need the stock rise to $55.60 by the expiration date. That’s a gain of about 6% from INTC stock’s current price.

The open interest levels for November 15’s $54.00 calls slightly increased over the past week. According to barchart.com, the open contracts rose by 2,403 contracts to about 10,758. A buyer of the calls would need the stock rise to $54.70 by the expiration date, a gain of about 4.3% from INTC stock’s current price.

Analysts’ coverage and target prices for Intel

For the most part, Wall Street analysts have upgraded Intel stock over the last six months. The consensus price target was $53.78, which represents a 2.79% upside. See MarketBeat for a detailed breakdown. According to TipRanks, INTC is a “Hold” with an average price target of $ $53.94, representing 2.84% upside. 

Looking for more analysis of semiconductor stocks? Please check out Why Nvidia Stock Could Keep Rising and Why AMD Stock Could Surge after Its Q3 Earnings.


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