Options Trade – Intel Corporation (NASDAQ:INTC) Calls
Monday, January 12, 2015

**OPTIONS TRADE: Buy the INTC Mar 2015 40.000 call (INTC150320C00040000) at or under $0.40, good for the day. Place a protective stop loss at $0.15 and a pre-determined sell at $0.80.

by Ian Harvey

January 12, 2015

Introduction

Intel Corporation (NASDAQ: INTC), incorporated in 1968, which designs and manufactures integrated digital technology platforms, will report Q4 earnings on January 15. The company is scheduled to report its financial results before the market opens, and analysts have forecast quarterly earnings of $0.66 per share. During the same period last year, the company had earnings of $0.51 per share.

Intel has been in a strong upwards trend over the last year, fueled in part by a string of better than expected earnings reports. The company has shown strength in reaction to a stabilizing PC business, which helped the company grow revenues 8% last quarter. PC sales have shrunk in recent years, due to a shift towards mobile and tablet computers. Intel's PC division enjoyed 9% growth last quarter, but its mobile division remains weak, however, with the PC sector finally stabilizing, the company should continue to build on its recent momentum. Expect a solid earnings report, with INTC stock moving higher following the report.

Technical Details

Technical indicators for INTC are bullish and the stock is in a strong upwards trend.

Intel Co. has a one year low of $23.50 and a one year high of $37.90. The stock’s 50-day moving average is $36.70 and its 200-day moving average is $34.20. The stock has support above $35.25 and recent resistance below $37.75.

The company has a market cap of $177.7 billion and a price-to-earnings ratio of 17.47.

Earnings

Intel last announced its earnings results on Tuesday, October 14th. The company reported $0.66 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.64 by $0.02. The company had revenue of $14.60 billion for the quarter, compared to the consensus estimate of $14.45 billion.

During the same quarter in the previous year, the company posted $0.58 earnings per share. The company’s revenue for the quarter was up 7.9% on a year-over-year basis. On average, analysts predict that Intel Co. will post $2.24 earnings per share for the current fiscal year.

Why Intel?

What became apparent in 2014 was that Intel is primarily a data server and PC market solutions provider, and that should remain the case heading into the New Year. Of Intel's $14.6 billion in revenue last quarter -- an 8% improvement over Q3 2013 -- $9.2 billion came from the PC group. Until recently, that would have been viewed negatively; however, PC's aren't going away. In fact, the market is stabilizing, which is how Intel was able to grow its Q3 PC-related revenue 9% over the previous year.

Intel's other key division, its data center group; really hit its stride in the third quarter, boosting revenue by 16% to $3.7 billion. The impetus for Intel's strong data center growth has been, and will remain in 2015, the cloud. While companies such as Microsoft and IBM battle over cloud-delivered services, Intel is a dominant player in cloud storage and data-related solutions, aka data centers.

As revenues from the cloud continue to explode -- IDC predicted spending would reach $56.6 billion in 2014, and climb to over $127 billion in 2018 -- Intel has positioned itself as the data center provider of choice. The company is also positioned well in the high-end, custom chip solutions many of today's cloud providers are demanding. The price of PC chips dropped 4% in 2014, but data center chip prices jumped 10% compared to 2013. This has helped Intel's gross margin last quarter improve to 65% from 62.4% in 2013's third quarter.

Also, $530 million in revenue last quarter was added-- a 14% improvement compared to the same period of 2013 -- in another exploding market, the Internet of Things, and it's easy to see why more than half the analysts covering Intel have a "strong buy" rating on the company. Short interest -- investors betting on a share price decline -- has dropped over 14% the last several weeks, despite Intel bumping up against 52-week highs. That is another indication industry pundits aren't expecting Intel's share price to pull back.

Analysts Opinions

Several brokerages have updated their recommendations and price targets on shares of Intel in the last few weeks:-

• 1/5/2015 – Intel was upgraded by analysts at MKM Partners from a “neutral” rating to a “buy” rating. They now have a $45.00 price target on the stock, up previously from $40.00.

• 1/5/2015 – Intel was given a new $40.00 price target on by analysts at RBC Capital. They now have a “sector perform” rating on the stock.

• 12/30/2014 – Intel is now covered by analysts at Citigroup Inc.. They set a “neutral” rating on the stock.

• 12/29/2014 – Intel had its “hold” rating reaffirmed by analysts at Needham & Company LLC.

• 12/19/2014 – Intel had its “top pick” rating reaffirmed by analysts at Bank of America. They now have a $43.00 price target on the stock.

• 12/18/2014 – Intel is now covered by analysts at Citigroup Inc.. They set a “neutral” rating and a $35.00 price target on the stock.

• 11/24/2014 – Intel had its “standard” rating reaffirmed by analysts at Morningstar.

• 11/21/2014 – Intel had its price target raised by analysts at Cowen and Company from $34.00 to $36.00. They now have a “market perform” rating on the stock.

• 11/21/2014 – Intel had its price target raised by analysts at FBR Capital Markets from $36.00 to $40.00. They now have an “outperform” rating on the stock.

• 11/21/2014 – Intel had its price target raised by analysts at Topeka Capital Markets from $38.00 to $40.00. They now have a “buy” rating on the stock.

• 11/21/2014 – Intel had its “buy” rating reaffirmed by analysts at S&P Equity Research.

• 11/21/2014 – Intel had its price target raised by analysts at Imperial Capital from $37.00 to $40.00. They now have an “outperform” rating on the stock.

• 11/21/2014 – Intel had its price target raised by analysts at MKM Partners from $36.00 to $40.00. They now have a “neutral” rating on the stock.

• 11/21/2014 – Intel was downgraded by analysts at Credit Agricole from an “underperform” rating to a “sell” rating.

• 11/21/2014 – Intel had its price target raised by analysts at RBC Capital from $35.00 to $38.00. They now have a “sector perform” rating on the stock.

• 11/21/2014 – Intel had its price target raised by analysts at Stifel Nicolaus from $36.00 to $39.00. They now have a “buy” rating on the stock. They wrote, “Intel hosted its annual investor day at its Santa Clara, CA headquarters on Thursday, 11/20/14. In our view, management’s message was that Intel has been humbled by missing the mobile market and is relying on three strategies, Moore’s Law, integration and shared IP, to both gain share in mobile and be certain they don’t miss the next emerging market. Meanwhile, its core PC business has stabilized and its server business is expected to grow 15% annually. Management provided 2015 full year guidance (which may be conservative) and announced an increase to its dividend. We continue recommending the shares.”

• 11/18/2014 – Intel had its “buy” rating reaffirmed by analysts at Credit Suisse. They now have a $43.00 price target on the stock.

Conclusion

The day before Krzanich was named CEO barely a year and a half ago, Intel's stock price sat at a dismal $23.99 share. Patient shareholders have been rewarded, and then some in 2014, with the stock closing Dec. 30 at $36.79. And there's no reason to think 2015 will be any different.

Since earnings season is about to kick off, chip giant, Intel, will lead the parade in tech land. The company is expected to report a strong fourth quarter, finishing up what turned out to be a decent 2014. It is expected that momentum will continue into 2015, as the company continues to push into the mobile space and wearables. The PC segment is also still a strong driver which has helped Intel shares do quite well in recent months, aided by a strong capital return plan -- expectations are high for the company.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the INTC Mar 2015 40.000 call (INTC150320C00040000) at or under $0.40, good for the day. Place a protective stop loss at $0.15 and a pre-determined sell at $0.80.



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