Intel Provides An Opportunity To Make Some Bucks

Summary

• Intel's share price is set to rise this year on the back of strong fundamental cues and positive chart signage.
• The firm's share price has taken support from the 100% Fibonacci level.
• The fourth-quarter earnings report of the firm has beaten analysts estimates in all aspects.
• The acquisition of Mobileye has provided the firm with a fresh market line that promises a great future market share and profit level.

Intel (NASDAQ: NASDAQ:INTC) is one stock that I am certain shall have an impressive growth trajectory this year as the equity’s future price outlook is positive in both the short and long term.

Thus to discuss this further, I shall break down the equity’s future share price analysis into two major aspects. On one front, we shall solely utilise technical analysis to predict the price movements that investors can expect during the near future. Whilst in the next section, we shall utilise fundamental analysis to discuss the firm's earnings and the fundamental reasons of buying the equity whilst also glancing at the future pressure points of the firm.

The analysis has been broken down into this formation as in my last article, I received several requests from readers that valued the technical analysis point of view; but there were some readers who wanted to learn about the fundamental growth factors of the firm, thus I shall satiate both sides of the pond in this analytical article.

Equity Price History for the past six months:

The stock is part of a rare group of equities that didn’t tumble significantly in the past one month as we saw the stock stay largely remain above its 50-day MA whilst most equities fell right through it. Moreover, we see that the equity never broke below 100-day MA with its real body as it tested the 100-day MA twice but rose from it instantly and that too with huge bullish strength. Moreover, we see that the firm has been trading in identical swings from a while thus offering predictability in its equity prices.

Technical analysis:

As mentioned above, in this segment we shall solely rely on technicals as I believe this provides a superior outlook for the future. When I add the technical tools to the equity’s daily chart I anticipate that in the coming future investors shall be able to book a profit of 10 to 19 points (dollars) from the current equity price which shall provide them with a fine level of return.

In the past one week, we have seen a small falling window form which was made up of a mere 14 cents. But we saw that in the last trading day of the week the falling window was obliterated by the large bullish pattern seen on Thursday. Thursday’s candle pattern can be classified as a Bull Sash pattern and the psychology behind this candle denotes to us the bulls’ ability in ensuring that Intel’s share price moves up, thus this reaffirms my stance that the bulls are now in the driving seat. But investors ought to also look at the risk-reward scenario as the equity has made a substantial move due to the candle pattern seen.

On the moving average frontier, we see that Thursday's Bull Sash pattern encompassed the short term EMAs and the 20-day moving average thus preparing a solid ground for a strong bullish upturn. The moving average pattern currently seen is usually followed through by a railway track type of upwards parallel formation which aids in raising the value of the equity by a significant margin. Moreover, we note that the 50- and 100-day moving average lines are ascending steeply.

On the RSI frontier, we note that the RSI value is ascending sharply and has just blown past the 60 mark which shows that the equity has entered a clear bullish phase as of now thus an ascent shall occur as anticipated. Whilst on the ADX frontier, the indicator bottomed out last week as it has flattened in both the settings I utilise and now shall start a fresh ascent as it shows that the current trend strength is increasing as the days go by.

For the support and resistance, I have utilised the Fibonacci tool as it accurate in anticipating the trajectory of an equity. The equity has currently taken support from the 100% level. The candle patterns’ in the last two weeks partially broke through the 100% level but always managed to bounce back as their lower wicks had touched the 127.2% support level. Moreover, we see that Thursday's bull sash pattern took support from the 78.60% support level. On the resistance anterior, the closest key Fibonacci resistance line is 10 points away whilst the second key resistance line is 19 points away.

Overall, on the basis of technical analysis, I am confident that in the near future the equity shall rise as all the western indicators are aligned with the Japanese candlestick signals thus signifying a bullish upturn is in the making. Investors trading in this time frame could look at the 100% support level as their stop loss level as I deem this shall hold due to past trends.

Intel's Earnings review:

The reported earnings of the firm for the fourth-quarter of 2017 were $1.08 per share, which beat most analysts estimates by 22 cents. The numeral rose by 36.7% from the same quarter of a year ago. The high level of earnings growth was a result of the firm's excellent top-line performance plus the expansion witnessed in the firm's operating margin.

The total revenue of the firm rose to $17.05 billion which reflects an increase of 5.6% quarter over quarter. This value also beat all analysts estimates as the highest anticipated total revenue was $16.31 billion. The top-line growth was derived predominantly from the impressive performance seen in the Data Centre division, Internet-of-Things division, Non- Volatile Memory Solutions division and Programmable Solutions division. The divisions mentioned contributed for about 46% of the total revenues. This too is up by 2% from the third quarter as the value then stood at 44%. These divisions are the core of Intel’s data business, and their results have improved by 21% year on year.

2017 Financials were remarkable:

In 2017, Intel reported revenues of $62.76 billion, which beat most analysts estimates as the best estimate had pegged the revenue level at $62.02 billion. Moreover, operating income rose by 18% which made the figure rise to $19.6 billion. This was primarily due to the strong level of business the firm has been receiving whilst also the tough spending discipline the firm is currently observing. Also, we witnessed the earnings rise by 27.2% to reach $3.46 per share.

On the operating details financial segment, we see that the gross margin for the quarter was 64.80% which is a rise of 170 basis points yoy whilst sequentially it’s a rise of 90 basis points. On the other hand, the firm's total spending reduced in this quarter by 7%. The operating margin of the firm was 24.8% which is also up on the year on year frontier by 490 basis points.

Finally, on the balance sheet frontier, we note that Intel reported that it currently has $10.3 billion in free cash flow whilst the paid dividend value stands at $5.1 billion and the bought back share value is at $3.6 billion. The firm also shed light on the source of funds it utilised in the purchase of Mobileye and from the balance sheet we see that this acquisition was primarily funded by the sale proceeds from the firm's non-core assets, which included McAfee and ASML shares. The firm sold 11.4 million shares of ASML which provided Intel with a gain of $1.5 billion in the fourth quarter. The firm in the last quarter also decreased its leverage level and its interest expense by redeeming debt worth $ 425 million into cash. Lastly, we see that the firm has raised its quarterly cash dividend pay-out by 10% on an yearly basis.

Fundamental Reasons to Buy:

• The firm's management has always ensured that the organisational strategy evolves with the changing times. The current focus of the firm has been around cloud computing and data centres and that is clearly visible as Intel has been utilising every tool in their belt to ensure that they maintain their market share in these segments. They are doing so by continually investing in their Internet of Things and non-volatile memory division. Whilst earlier the firm's primary focus was upon manufacturing the finest processing chips, we see that Intel now is preferring to centre their attention on a broader product array that helps them target diverse segments in the marketplace. In the past, the firm's significant growth portion was attributable the developed economies, but in the new strategy that the firm has adopted we see that they shall now be able to crack into more device categories and markets, where their products shall attain a premium value due to their high performance and reliable brand name.
• I am exceptionally optimistic about the firm's data centre segment as demand levels for cheaper computing devices is intensifying thus many firms are looking for a new breed of chips that are more effective in helping to save cost and energy. Thus, in this area we have seen Intel make advancements and now the firm is offering a more inclusive package of unified solutions that will compete with rivals' products on a cost per watt basis. Therefore, in the current year we can expect that sales to rise in the areas of cloud computing, virtualisation and enterprise upgrades due to this.
• Intel may have been late to the party in terms of entering the mobile segment but they have not wasted any time in entering the Internet of Things market segment. The Internet of Things market segment is currently very hot thus shall witness high levels of growth over the next couple of years. Due to this we see that Intel’s has placed a huge level of emphasis on delivering processing chips that come with related hardware pieces. This puts the firm in a place of strength in the market. Moreover, we see that in 2017 Intel produced revenue of $13.7 billion from the Internet of Things. Moreover, the firm has made strategic acquisitions in the past years which has aided them in building out a robust portfolio which in turn shall strengthen their position in this embryonic market. All the mentioned factors place the firm in a position where it shall highly profit from the market segments’ growth.
• In the microprocessor segment Intel can be considered an undisputed market leader. The firm is now focusing on selling not just independent processing modules but also platform systems that shall be optimised for the particular markets they shall be utilised in. This new approach is speeding up the whole computer system rather than the central processing unit on its own thus we see that the market response to this has been very positive.
• Recently, Intel acquired an Israel based firm named Mobileye which is a manufacturer of autonomous vehicle technology. This acquisition has aided the firm in entering the autonomous car technology market which is currently controlled by Qualcomm and NVIDIA. Now after the acquisition, Intel shall have access to the firm's technologies which primarily focus on the market areas relating to cameras, in-vehicle networking, sensor-chips, roadway mapping and machine learning. The entry into these new market areas shall boost Intel’s customer base which in turn shall boost their bottom line profits.

Fundamental Stress points of Intel:

• The persistent decline in the international PC market segment places a great pressure on the firm. Currently, Intel has placed its hope on Microsoft’s Windows 10 to attempt to revive pc sales but all this shall be heavily dependent on the level of enterprise spending that is undertaken. Though PC sales have shown a glimmer of hope I still don’t expect the market segment to revive in full thus it cannot be considered a game-changer for Intel in the future.
• The firm is facing a high level of competitive threat in the server and networking market segments. The server division of the firm has constantly produced high profit levels for the firm but off late ARM has been offering stiff competition to Intel. Furthermore, recently NVIDIA formed an alliance with IBM which shall boost the level of competition in the HPC accelerator segment. I say this as IBM has so far made a tie-up with more than 90 companies such as Google with the objective of constructing an ecosystem around its Power processors.
• There has been a severe change in the dynamics of the computer market in terms of its clientele. I say this as consumers are these days opting to utilise lightweight cellular devices thus to cater for these needs Intel started production of a range of processors called Atom. But this new range of processors has not been very successful in the market thus affecting the bottom line of this segment so we shall have to wait and see how this segment fares in the coming year.

Overall picture:

On the whole, Intel is on a very solid footing on a fundamental frontier which will ensure that in the long term the equity share price gets propelled ahead. The current technical picture of the firm fully supports the notion that there will be a price rise that will aid investors to book profits that will earn them a good yield for the year.

Overall, no matter how you decide to trade this equity, do ensure that you utilise trailing stops to ensure that you’ll be around for the next trade as capital protection is key!

Good luck trading.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.