The company's business was tied for the longest time to personal computers, whose sales have been dropping. But Intel, which reports first-quarter earnings late Tuesday, has been decreasing its reliance on PCs, and analysts have begun to notice.
This is a stock with name-brand recognition -- think of all those Intel Inside stickers on your laptops and PCs -- whose shares, at around $32, are cheap at 13.5 times fiscal 2016 estimates of $2.38 per share. Shares are off 7.7% for the year to date, but less than 1% for the past 52 weeks. The company that produced Andy Grove also will pay you to wait and watch its resurgence with a solid 26-cent quarterly dividend that yields 3.29% annually.
Analysts, on average, expect 48 cents per share of earnings on revenue of $13.89 billion, up 17.7% and 8.7%, respectively, from the year-ago quarter. For the year, earnings are projected to rise 2.14% year over year to $2.38 per share, while full-year revenue of $58.49 billion would mark a 5.7% increase from last year.
Reducing its dependency on slumping personal computers continues to be Intel's top priority. The pace of this transition appears to be geared toward higher-margin areas including Data Center and Internet-of-Things.
In its fourth quarter, for instance, data center revenue, which has become Intel's largest growth driver, delivered $4.3 billion, accounting for almost 30% of fourth-quarter sales. What's more, the fact that Intel's gross margin was 64.3%, up 130 basis points from the prior quarter and above a guidance midpoint of 62%, suggests Intel has begun to realize merger synergies from its $16.7 billion acquisition of Altera.
Now that Altera will operate as part of Intel's Programmable Solutions Group, not only will Intel's data center business get an immediate boost, Intel's profits can grow even faster. There's also the significant revenue growth Intel may realize if its modem chips were to replace those of Qualcomm (QCOM) in Apple's (AAPL) iPhones, as reports suggests.
In short, there are now many more reasons to bet on an Intel recovery than to be bearish, especially now that there are some signs, according to Gartner, that personal computer sales, still about half of Intel's revenue, have begun to stabilize.