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Intel: Solid Results, But Shares Fully Valued

Lowered fourth-quarter guidance won't impact our fair value estimate of this wide-moat tech leader, writes Morningstar’s Abhinav Davuluri.


 Intel (INTC) reported fairly solid third-quarter results which exceeded its guidance as well as our expectations. The firm's recently released sixth generation core processors (Skylake) helped bolster its client computing group sales while revenue from other segments like data center, Internet of things, and memory, each grew at least 10% year-over-year. Although we were surprised with another cut to full-year capital expenditures, our long-term forecast remains intact for Intel's process node transitions. Shares tracked lower by 3% after hours as a result of lowered fourth-quarter guidance for the data center group, but we maintain our view that Intel can grow that segment at a compound annual growth rate of 15% in the long term. We reiterate our fair value estimate of $31 for this wide moat, negative trend name, and recommend prospective investors wait for a wider margin of safety.

Third-quarter revenue of $14.5 billion was up 10% sequentially and roughly flat from the same period last year. Although notebook and desktop unit volumes were down considerably year-over-year (14% and 15%, respectively), client computing group revenue was still up 9% from last quarter to $8.5 billion. The PC market appears to be stabilizing, as Intel is seeing stronger average selling prices related to the new Skylake platform and a reduction of subsidies for Bay Trail processors sold into tablets. Data center group, or DCG, sales were at a record high of $4.1 billion as a result of continued strength in cloud spending that led to higher volume and average selling prices.

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Abhinav Davuluri does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.