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Why Intel Stock Just Dropped 11%

By Rich Smith – Oct 23, 2020 at 12:20PM

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"Intel missed earnings!" "No, wait! They beat!" So which is it?

What happened

It's the day after earnings for Intel (INTC 1.14%), and its stock is down -- 11% as of 10:15 a.m. EDT today.

That's kind of surprising. While some outlets (The Wall Street Journal, for example) say that Intel missed on its earnings in Q3, others (like point out that Intel's "adjusted" earnings actually exceeded expectations.  

For Q3, analysts were forecasting that Intel would earn $1.04 per share, as calculated according to generally accepted accounting principles (GAAP), and $1.10 pro forma. As it turned out, Intel's GAAP number was $1.02 per share (a miss) but $1.11 per share pro forma (a beat). Quarterly revenue clearly beat expectations -- $18.3 billion, where Wall Street had predicted $18.2 billion.

White arrow declining sharply atop a stock display bathed in red

Image source: Getty Images.

So what

So I guess you could call it a "mixed quarter" -- but was it really bad enough to justify an 11% haircut in stock price?

Independent of expectations and when viewed objectively, Intel's Q3 results showed a clear slowdown in the business. Sales declined 4% year over year, gross profit margins fell 570 basis points, and GAAP profits per share declined 25%. CFO George Davis explained that while demand for PCs was strong in the quarter, the Intel chip-loaded PCs that sold strongest were in the consumer and education markets, "which tends to be ... more entry-level" (i.e., low margin).  

In contrast, sales to data centers and higher-margin PC sales softened.

Now what

Despite all of the above, however, Intel was optimistic about where it's headed this year. Giving new guidance for the full year fiscal 2020, Intel raised its estimates to $75.3 billion in sales, $4.55 per share in GAAP earnings, and $4.90 per share in pro forma profit.

Inasmuch as analysts are still looking for only $4.85 per share pro forma, and on sales of only $75.1 billion, Intel sure looks like it is predicting that it will follow up Q3's "mixed" quarter with a clear "beat" in Q4. To me, that doesn't seem like a very good reason for selling the stock.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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