The initial response to financial data is exaggerated


U.S. chipmakers are under severe pressure in the 2020s as supply chain bottlenecks have created an acute shortage of technology components. It has reached a crisis level because the demand is still there, but companies like Intel simply cannot supply the supply.

Based in Santa Clara, California, Intel Corporation (INTC) is one of the world’s leading designers and manufacturers of microprocessors. I am bullish on the stock.

Intel’s financial results in the first quarter of 2022 were closely watched as they represented an indicator for the microprocessor industry in general. If Intel fails, it bodes ill for the rest as the company is a major competitor in the global chipmaker market.

Judging by the movement of INTC’s stock price immediately following the release of its quarterly earnings data, investors might be tempted to assume that the company is in bad shape. Granted, Intel faces the same supply chain issues that plague many technology component manufacturers.

Assessing Intel’s tax status solely on the basis of superficial sentiment, however, would be a mistake. Savvy investors should get into the habit of looking under the hood and analyzing the actual results — which, in Intel’s case, aren’t actually too disappointing.

Exceed (some) expectations

Were Intel’s Q1 2022 results a beat or a miss? The answer depends on who you ask.

Of course, if you ask Intel, the results were beats across the board. However, we must keep in mind that the purpose of a corporate press release is not to highlight negative data points.

Still, it’s irrefutable that Intel exceeded expectations “both in terms of revenue and bottom line,” as the company’s CEO Pat Gelsinger said. Starting with early results, Intel reported GAAP revenue of $18.4 billion in the first quarter of 2022, down 7% year-over-year. Coincidentally, the company’s non-GAAP revenue also totaled $18.4 billion, and that figure represents a 1% year-over-year decline.

Revenue declines aren’t usually good news, but both numbers topped Intel’s January forecast. Additionally, Intel achieved record quarterly revenue in the company’s Network and Edge Group, Mobileye and Foundry Services businesses.

In other words, early results from Intel were very good, according to Intel. They were also in line with Wall Street expectations, as analysts had forecast the chipmaker to make $18.3 billion in quarterly revenue.

Additionally, Intel exceeded its own expectations, as well as those of Wall Street, for the company’s results in the first quarter of 2022. Intel’s non-GAAP earnings per share (EPS) were found to be 87 cents, beating Intel’s January forecast by 7 cents and beating the analyst community’s consensus estimate of 78 cents.

A good start?

With the aforementioned budget numbers in mind, Gelsinger said Intel had “a strong start to the year.” Certainly, the beats (or at least the encounters) on the top and bottom lines support a pretty firm bullish case for INTC stocks in 2022.

However, not everyone is impressed with Intel at the moment, and that sense of disappointment is reflected in the sharp and negative move in INTC stock prices. What is the sticking point that caused the stock price to drop, then?

When a company publishes online financial results and/or online financial results, but the stock price still sells, there is often an obvious culprit: orientation. It is not uncommon for investors to sell their shares in panic when they are unhappy with a company’s future financial prospects.

“[W]We are reaffirming our full-year revenue guidance,” said Intel Chief Financial Officer David Zinsner — which may sound correct, but apparently isn’t what some investors wanted to hear.

Specifically, Intel maintained a revenue outlook for the second quarter of 2022 (both GAAP and non-GAAP) of $18 billion. Maybe Intel investors were hoping for a higher number than that.

Reportedly, analysts’ consensus call was for an $18.3 billion revenue outlook for the second quarter of 2022. Therefore, Intel’s $18 billion outlook was a “failure” against what Wall Street envisioned.

Let’s be reasonable here, though. $18 billion versus $18.3 billion is not a huge shortfall. Also, it wasn’t a real “failure” in terms of what actually happened. This only represents what Intel expects to happen in the current quarter.

If this is why people have dumped their INTC stocks, then there is a huge buying opportunity to capitalize on. After all, Intel’s 12-month price-to-earnings ratio of 9.13 suggests the stock is currently a major boon for value investors.

Incidentally, Intel also pays a forward annual dividend yield of 3.21%, a cherry on the cake for INTC shareholders.

The Taking of Wall Street

According to TipRanks analyst rating consensus, INTC is a Hold, based on six Buy, 13 Hold and seven Sell ratings. Intel’s average price target is $51.10, implying an upside potential of 17.23%.

Takeaway meals

Intel’s actual financial results weren’t particularly bearish, but some investors still found cause for panic. In this case, it was Intel’s forecast, which was only slightly below Wall Street’s expectations.

Investors should consider starting or increasing their positions in INTC shares, as the initial response to Intel’s financial report was not entirely reasonable. It’s a great example of how you can invest wisely even when the markets aren’t quite right.

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