At Intel's (INTC +13.79%) earnings release, the company announced that it would be adding $20 billion to its buyback authorization. More importantly, $4 billion of that buyback will be executed in the current quarter alone. Though some may be concerned that Intel is buying shares near all-time highs (and I'll admit that it would have been nice to see this kind of buyback activity when the shares traded in the low $20s), this really is a fantastic, shareholder-friendly move.
Following Apple's lead; Intel stock untouchable by the shorts
If you rewind back to last earning's season, you may remember that Apple increased its buyback authorization to $90 billion, up $30 billion from the prior authorization. Further, the company expects that -- by the end of calendar 2015 -- it will return a whopping $130 billion to shareholders through a combination of dividends and buybacks.
What did Apple stock do following that report? Well, see for yourself:
Source: Google Finance
Since that report, Apple shares -- which were already outperforming the Nasdaq index over the last year -- extended its outperformance. Intel probably wasn't blind to this and probably realized that by putting in such a gigantic buyback authorization, it could make its stock a very unattractive short.
What's next for Intel stock?
Intel's $20 billion buyback is good for about 593 million shares or approximately 12% of the shares outstanding. Intel is probably going to be opportunistic, but at the same time it's very difficult to imagine that the shares would pull back much here. In fact, if anything, Intel is likely to continue to play its game of "under promise, over deliver" and it wouldn't be the least bit surprising to see the company blow past its guidance for the year.
But by far the more important driver of Intel's stock will be the Investor Meeting that will take place this November. At the Investor Meeting, Intel will issue its guidance for 2015 by segment. It is likely that Intel will call for the following:
- PC share gains. As Intel brings its 14-nanometer Broadwell and Braswell products, it should gain further share against rival Advanced Micro Devices (AMD +11.44%), which recently saw its PC chip shipments drop 20% year over year as a result of share loss to Intel.
- Continued datacenter growth. Intel is likely to guide to another year of double-digit revenue growth in the datacenter. The question will be whether the company guides to low double-digits or mid-teens double digit percentage growth. If the strength in the company's enterprise-focused business seen this quarter extends into next year, then mid-teens percentage growth seems achievable.
- Mobile loss narrowing. Intel is burning about $4 billion per year in mobile on what is essentially now $0 net revenue. As the contra-revenue offsets associated with tablet shipments goes away next year, and as Intel's LTE modems and cell-phone-oriented apps processor ramp, the company should see meaningful revenue growth and the loss should narrow significantly. The magnitude of which will become clear at the meeting.
All of these factors combined, in my view, should drive about 5-7% revenue growth next year -- likely well above sell-side consensus of 2.70% growth. With the bar for 2015 very low and with a very large buyback program in place, it's hard to see Intel shares trending anywhere but "up" over the next 12-18 months.
Shorting Intel at this point really looks like like trying to short Apple shortly after its blowout results in April -- we all know how well that has worked out!
