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Intel has enough good news to go around
The company's raised guidance is enough to lift its stock and give its sector a shot in the arm. Look for Intel shares to rise to the best levels since early 2004.
By Robert Walberg
What's good for Intel (INTC, news, msgs) is good for a lot of tech investors. And with its second-quarter guidance on Thursday, Intel certainly did itself and the sector a favor.
Bolstered by stronger-than-expected demand for its wireless Centrino chip, which is used in notebook computers, Intel raised its second-quarter revenue guidance to a range of $9.1 billion to $9.3 billion, from $8.6 billion to $9.1 billion. The company also upped its gross-margin target by one percentage point to 57%, plus or minus the standard 1%.
Given the higher estimates, investors can expect Intel shares to rise by 25% or more before the end of the year. Computer and component makers -- including Dell (DELL, news, msgs) and Seagate Technology (STX, news, msgs) -- should get a boost as well.
Get ready for the upgrades
Look for Wall Street to applaud the news with a series of ratings upgrades. Earnings estimates for the second quarter and the second half of the year will also be pushed higher. Prior to the update, the Street was expecting Intel to earn 28 cents a share on sales of $8.99 billion.
Based on the adjusted forecasts, consensus estimates for the second quarter should move north to about 32 cents a share on revenues of $9.2 billion. That would represent year-over-year gains of 18.5% and 14.3%, respectively.
It should be noted that the company's second-quarter net income will get a boost from a lower tax rate: 26% versus the prior quarter's 31%.
More about technology on MSN Money
Even with the tax-rate adjustment, these are very impressive numbers for what is traditionally a slow quarter.
Look for the Street to also up its full year sales and earnings estimates from $38.08 billion and $1.36 a share to somewhere in the range of $41 to $42 billion and $1.43 to $1.45. Based on these new figures, I also expect analysts to adjust their stock price targets to somewhere north of $32 a share.
Solid growth good news for many
Though strength in its laptop segment was the headliner, Intel is enjoying solid growth across the board. It is particularly encouraging for the rest of the tech sector to see such strong growth in the computer market. That's good news for hardware companies such as Dell and Hewlett-Packard (HPQ, news, msgs), as well as component makers such as Seagate Technology and Western Digital (WDC, news, msgs).
Chip-equipment stocks are also likely to get a boost off the news, as the better the chip companies perform the more likely they are to increase spending on equipment. Expect stocks like Applied Materials (AMAT, news, msgs), KLA-Tencor (KLAC, news, msgs) and Teradyne (TER, news, msgs) to get a boost in tomorrow's trading.
Before you dash out and load up on chip stocks, though, remember that the stock and the sector have enjoyed strong advances prior to today's news on speculation that industry conditions were improving. Since bottoming in April, Intel and the Philadelphia Semiconductor Index ($SOX.X) are up by 26.2% and 16.4%, respectively. In other words, some of Intel's good news is already priced into the stock.
Even so, there are two things that really get a stock going: ratings upgrades and earnings upgrades. Intel will receive a slew of both in the days to come. Investors should expect the stock to blow through its 52-week high of $29.01 on its way to a retest of the $34.50 area last seen in early 2004.
Similarly, look for today's news to catapult the SOX index out of its six-month trading range and on toward resistance at 487.91.
For more on renewed strength in the chip sector make sure to check out a recent article by Jon Markman, Dare we believe in a chip rally?
At the time of publication, Robert Walberg neither owned nor controlled shares in any equities mentioned in this column.
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