Is Williams Cos. (WMB) the Ultimate Long-Term Energy Stock Buy for Investors?

Posted on by The INO.com Team

Natural gas company The Williams Companies, Inc. (WMB) , boasting a market cap of over $43 billion, recently outperformed third-quarter estimates, driven by increasing revenues generated from its midstream business.

The inherent qualities of the midstream business model mean that oil and gas pipeline transportation and storage activities are relatively shielded from fluctuations in commodity pricing. WMB generates profit when customers utilize its infrastructure under fee-based and non-cash commodity contracts within its gathering business. To counterbalance specific commodity price risks, the company employs hedging strategies.

Notably, 80% of WMB's customer base are investment-grade companies, which reduces the risk of financial instability during adverse economic climates. Additionally, utilities and power entities constitute 68% of its clientele, further bolstering its low-risk profile.

WMB operates as a crucial intermediary connecting energy producers to consumers, thereby reaping benefits from the surging demand for energy infrastructure and the transition to more environment-friendly energy sources, including natural gas.

The company is proactively contributing to the clean energy transition with heightened efforts toward developing clean hydrogen commercially. WMB asserts that natural gas is pivotal in satiating the escalating energy demands and concurrently reducing pollutant emissions. The Biden administration's support of Mountain Valley Pipeline completion highlights the critical need for robust natural gas infrastructure.

Pipeline operators like WMB stand to gain considerably when natural gas demand surges, enabling these companies to capitalize on service revenue, which makes up most of their sales. With the potential rise in natural gas demand , WMB's commitment to leveraging its expansive natural gas infrastructure for sustainable growth could be lucrative.

WMB continues to uphold its broad operational reach, which extends across 14 strategically vital supply areas. As an energy infrastructure titan, WMB forecasts considerable future growth. In recent developments, the pipeline giant has committed to several acquisitions and authorized additional expansion initiatives, effectively extending its visible growth trajectory through the upcoming years. Moreover, further projects are underway.

Transco's Regional Energy Access project was concluded ahead of the anticipated timeline, with full-rate revenues to commence in late October. It is expected that the signing of the precedent agreements for the Southeast Supply Enhancement project is likely to boost EBITDA.

Bayou Ethane Pipeline system was sold for $348 million in cash, or over 14 times the adjusted EBITDA. The subsequent revenue was allocated toward procuring Cureton Front Range and its joint venture partner's 50% interest in Rocky Mountain Midstream, resulting in complete ownership by WMB. A total of $1.27 billion was spent on these acquisitions, equating to roughly 7x the adjusted EBITDA.

Over the next year, as the new assets are amalgamated into the existing portfolio, the acquisitions are projected to boost the company's cash flow and streamline regional operations.

WMB extends an appealing proposition for investors seeking both growth and steady income. It exhibits a firm growth track, with its net income growing at a 5.2% CAGR over the past five years. The natural gas pipeline giant delivers an impressive 5.1% dividend yield on the current share price, catering to income-driven investors.

The growth has enabled WMB’s dividend to grow at a 6% CAGR over the same period. The solid mix of its consistent dividend income and steadfast growth could generate considerable returns in the forthcoming years.

But what’s driving this growth?

For the nine months that ended September 30, 2023, the company reported generating over $5 billion EBITDA, reflecting an 8.9% year-over-year increase despite the declining natural gas prices. Consequently, the pipeline company is on course to yield $6.7 billion of adjusted EBITDA this year, surpassing its previous guidance range by $100 million.

Further strengthening its financial health, WMB’s Available Funds from Operations (AFFO) have marked a 9.2% year-over-year surge to $3.89 billion. This rise has sufficiently cushioned the firm's cash reserves to cover its dividend by 2.38 times, presenting a 3.9% improvement from the year-ago period, even after incorporating its 5.3% dividend increase this year.

The key propellants stimulating this growth are multi-faceted, encapsulating the robust performance of its underlying business, the fruition of recently finalized expansion projects, and strategic acquisitions.
WMB has an impressive record of paying dividends to its shareholders for 33 consecutive years, growing it for five consecutive years. Given its financial strength, the company is unlikely to cut its dividend in the future. The dividend in 2023 was increased to $1.79 from $1.70 in 2022.

Bottom Line

WMB is projected to sustain steady growth in the upcoming years. Enhanced by recent acquisitions of organic expansion projects and strategic transactions, the company solidifies its already strong growth prospects. These secured projects are expected to fuel an annual earnings growth of 5% to 7%.

The company's commitment to natural gas infrastructure illustrates a comprehensive strategy that recognizes the evolving energy landscape and underscores dedication to sustainability, reliability, and substantial growth. This approach has thus far proven beneficial for the business, demonstrated by its assets that grew at a 6.7% CAGR over the past 10 years.

Strong natural gas demand could significantly boost the company, given the increasing need for electricity generation . Consequently, WMB may encounter heightened demand, offering the potential for significant cash flow returns to shareholders and a robust dividend yield.

WMB's capabilities to deliver cash flows for investors and enhance dividends should be prioritized. Maintaining the company's leverage ratio within a reasonable range will facilitate this sustainability.

A positive development was marked by a dip in WMB’s debt-to-adjusted EBITDA to 3.45x from 3.68x in the year-ago quarter. The strong capital cushion amid high-interest rates could serve them well in the future and boost the share price.

Shareholders are set to benefit from an impressive growth backlog, including completing seven out of nine significant pipeline projects scheduled for the fourth quarter of 2024.

Though dividends may serve as a luring feature when purchasing shares, the existing yield of 5.1% presented by WMB may dishearten investors, given that comparable superior-quality stocks within the sector provide more substantial yields. Even though WMB has capitalized on prevailing industry trends, prospective long-term investors may be inclined towards alternatives boasting greater returns.

Wall Street analysts expect the stock to reach $38.82 in the next 12 months, indicating a potential upside of 10.5% upside of 10.5%. Should there be no change in the dividend rate, falling dividend yields could be expected.

WMB’s robust financial stability, risk-averse customer base, and sustained growth in dividends make it an attractive option for income-oriented investors. Considering its 6% rally in the stock witnessed so far, the dividend yield is not particularly enthusing – especially considering that WMB's contemporaries also boast comparable growth potential.

A possible correction in the future could potentially optimize the risk-reward balance. On these grounds, it would be wise to wait for a better entry point in the stock.

Is NVIDIA (NVDA) Stock at Imminent Risk Due to a New Loophole?

Posted on by The INO.com Team

The Biden Administration has reinforced measures to curb the semiconductor exports of U.S. chipmakers to China, effectively plugging regulatory loopholes identified last year.

This move enhances the stipulations set forth by the U.S. Commerce Department, which unveiled stringent export control rules that were first established in October 2022. The revised regulations will block some AI chips beneath the existing technical parameters. Additionally, companies will now be required to declare shipments of certain other products. These fresh limitations will bolster the effectiveness of American controls and limit ways to circumvent these restrictions further.

This prohibition is part of a broad legal and financial policy strategy to promote U.S. national security, especially considering heightened competition with China. These unprecedented measures are intended to constrain Beijing’s technological and military ambitions. The initiative seeks to halt supplies of critical technology to China that could be utilized across various sectors, including advanced computing and the production of weaponry.

These heightened restrictions on tech exports to China coincide with American efforts to ease strained relations between the two largest global economies. This shift in policy toward China heralds a significant turn in U.S.-China tech diplomacy.

Last year, government restrictions prevented the Santa Clara, California-based chipmaker NVIDIA Corporation (NVDA) from shipping two of its most technologically advanced AI chips to Chinese customers – chips recognized as an industry-standard in developing chatbots and similar AI systems.

However, NVDA quickly adapted by releasing new, less sophisticated variants for the Chinese market that complied with U.S. export controls. They created the H800 semiconductor chip to replace the previously banned H100 for China, along with the development of the A800 to replace the A100 for Chinese firms. The H800 boasts comparable computing power to the company's more potent H100 chip in specific AI capacities, albeit with some performance limitations.

However, according to NVDA’s recent SEC filing , these restrictions apply to several of the company's chips, including the A100, A800, H100, H800, L40, L40S, and RTX 4090. This affects all systems sold with these chips, including their DGX and HGX systems.

Previously, in June, NVDA's CFO Colette Kress downplayed the impact of the potential export restrictions, asserting that they would not yield an “immediate financial impact” but that subsequent limitations, unexpected at the time, “would have an immediate material impact on our financial results .”

The U.S. chipmaker is at risk of losing $5 billion worth of orders from China due to the chip export ban. The orders were placed for 2024 by leading Chinese tech giants such as Alibaba, ByteDance, and Baidu. Before the imposition of the ban, NVDA expected to begin fulfilling some of these orders by November 15, the initial cut-off date for blocking shipments of advanced AI chips to China. Unless the U.S. government issues the required licenses necessary to make the deliveries, NVDA may have to cancel the lucrative orders.

Despite looming challenges, NVDA has consistently exceeded Wall Street's expectations with its strong earnings performance over the previous two quarters. This success is primarily attributed to the surge in demand for computer chips that power the ongoing AI revolution. Analysts had collectively forecasted earnings per share of $2.07 and sales of $11.09 billion for the last reported quarter. However, NVDA surpassed these estimates by posting earnings of $2.70 per share and sales of $13.51 billion.

Strategic collaborations between countries are anticipated to spur AI adoption worldwide. Tech companies of varied sizes are earmarking substantial investments in AI data centers to stay competitive. Latest projections suggest that the market for AI semiconductors will grow at a 30.3% CAGR to reach $165 billion by 2030. This surge in demand could favor NVDA owing to its current dominance in the AI chip industry.

To maintain its competitive edge, NVDA persistently advances its technological offerings like its recent GH200 Grace Hopper Superchip GH200 Grace Hopper Superchip platform. The new chip platform, engineered explicitly for certain AI applications, including LLM and generative AI, could keep the company one step ahead of its rivals in the AI chip market.

Furthermore, NVDA accentuated an already robust quarterly report with a projected revenue of approximately $16 billion for the upcoming quarter, surpassing average analyst forecasts. However, concerns regarding export regulations imposed on China could jeopardize the company's continued streak of success.

For the fiscal third quarter ending October 2023, analysts expect NVDA’s revenue and EPS to increase 169.6% and 481.3% year-over-year to $15.99 billion and $3.37, respectively.

One of the significant contributors to this year's 23% increase in the Nasdaq index is NVDA stock, which is currently experiencing a nearly 16% decline from its record peak closing value of $493.55, achieved on August 31.

Following the recent implementation of U.S. regulations, NVDA's share price saw about a 5% decrease. It trades beneath its 50-day and 100-day moving averages, respectively, indicating a downtrend.

However, Wall Street analysts expect the stock to reach $645.53 in the next 12 months, indicating a potential upside of 55.8% . The price target ranges from a low of $560 to a high of $1,100.

Bottom Line

Earlier this year, NVDA earned a coveted spot in the $1 trillion club following an impressive surge in its revenue guidance due to substantial order volume from the burgeoning generative AI industry. Notably, its stock has recorded a remarkable 180% increase year-to-date, an extraordinary achievement for an enterprise of its size.

This soaring valuation can be chiefly attributed to the enthusiasm surrounding NVDA’s high-performance chip technology – currently in high demand due to the growing focus on AI and ML capabilities being deemed essential by several industries.

With NVDA's shares trading at 19 times sales and 38 times earnings, it is certainly priced for perfection, signifying that any stumble could significantly affect it.

Despite the company's previous assertion that restrictions will unlikely cause short-term impact, now they appear to have the potential for long-term consequences. A projected robust quarter suggests NVDA shares could prove a solid long-term investment.

However, given the ongoing market instability, tepid price momentum and varying analyst estimates, it may be prudent to wait for a better entry point in the stock.

NVDA is preparing to announce its financial results for the forthcoming quarter within a few weeks. This report will help better assess the impact of the export restrictions on the company’s financials.

Impact of Lackluster Earnings on XOM and CVX -- What's Next for the Energy Stocks?

Posted on by The INO.com Team

Oil behemoths Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) recently reported third-quarter results, indicating enduring difficulties in accelerating oil production growth. Earnings have significantly dropped from the year-ago quarter, failing to meet the Wall Street projections. Nonetheless, both firms reported an upswing in earnings quarterly.

XOM's oil production has tumbled, while CVX has faced setbacks impacting key growth endeavors in Kazakhstan and the major hubs of oil production, including the Permian Basin in West Texas and New Mexico.

The market reaction to the earnings reports was swift and severe. CVX’s shares plunged about 7%, and a descent of 1.9% in XOM's shares was observed despite rising oil prices due to escalating tensions in the Middle East. This response underscores investor anxieties about these fossil fuel behemoths' long-term viability and fiscal discipline relative to sectors like technology.

Both companies confirmed technical issues in the Permian region, including constraints on wastewater production, high concentrations of carbon dioxide in natural gas, and challenges encountered by production partners during fracking operations. The complications of oil production expansion, coupled with operational problems, are anticipated to influence a surge in industry-wide costs.

However, not all seems grim for the oil corporations. The oil majors are reportedly amplifying their capital investments within the oil and gas sector, undeterred by growing global consensus on a shift towards clean energy alternatives. The acquisitions underscore the enduring interest of the oil companies in profitable oil and gas ventures.

These strategic moves suggest that these corporations do not anticipate a decline in oil demand in the future. Instead, they lean toward believing that oil's role will remain pivotal in the world's energy matrix for the foreseeable future.

The International Energy Agency's (IEA) forecast of oil demand peaking by 2030 amid expanded use of renewable energy sources. The prediction undermines the justification for increased expenditure on fossil fuels and further prompts the question of why cash-rich oil titans are not pivoting toward green energy ventures.

The answer lies partly in the clean energy transition being a long-term, costly process, complicated further by the current economic backdrop of persistent inflation, escalating borrowing expenses, and continual supply chain difficulties.

For the past two years, geopolitical instability – from Russia's military aggression in Ukraine to long-standing conflicts in the Middle East, has fostered unpredictability in energy prices. This has prompted concerns over energy demand, infusing uncertainties in the market. Additionally, easing oil and natural gas prices has exacerbated the profitability challenges of XOM and CVX.

A cautious approach has pervaded the market, with participants adopting a vigilant stance, awaiting the outcomes of pivotal events, including the U.S. Federal Reserve policy meeting and China’s latest manufacturing data.

In its most recent Commodity Markets Outlook, the World Bank projected global oil prices to reach around $90 a barrel during the last quarter of the year before diminishing to an average of $81 a barrel throughout the coming year as global economic growth decelerates. Such a decline could cast a shadow over the financial health of XOM and CVX.

These corporations, heavily vested in the extraction and sale of oil and gas, stand at risk of substantial revenue reductions, which could compromise their net profitability. Dwindling prices could pose formidable challenges for these companies in securing funds for new ventures and investments, jeopardizing their future profitability.

On the flip side, however, OPEC+ and Russia’s prolonged production cuts, in addition to the geopolitical turmoil, could exacerbate supply chain disruptions, propelling oil and gas prices in the future. This development creates a conducive climate for extraction and ensuing production activities.

Let’s see some other factors that have the potential to influence the stocks’ performance in the near term:

Exxon Mobil Corporation (XOM)

With a market cap of over $419 billion, XOM explores and produces crude oil and natural gas in the United States and internationally.

The cash influx enabled XOM to authorize a $60 billion acquisition of Pioneer, which attracted international media attention. Experts predict the strategic maneuver could boost XOM's domestic oil production twofold, catapulting the company into the top tier of American producers. It could stimulate added consolidation within this fragmented sector, strengthening American shale producers' role as the commanding players in the international oil market.

However, XOM's third-quarter profits fell by over half of its record high last year due to a decline in oil and gas price realizations, although the company's refinery throughput rose to 4.2 million barrels a day, the most since XOM merged with Mobil 24 years ago. The energy giant’s revenue slid 19% year-over-year to $90.76 billion, while non-GAAP earnings per share reached $2.27, falling short of analysts' predictions.

The dwindling profits were influenced by an approximately 60% decrease in natural gas price realizations and a 14% reduction in oil price realizations. The company also reported a 69.9% decline in earnings from its chemical products division due to increased feedstock prices and overproduction.

In the quarter, it returned $8.1 billion to the shareholders, comprising $3.7 billion in dividends and $4.4 billion in share buybacks.

Moreover, XOM announced an increase in its fourth-quarter dividend to $0.95 per share, payable on December 11, honoring its excellent history of shareholder returns. A testament to the company's reputation is its consistent record of paying dividends for 40 uninterrupted years.

Its annual dividend rate of $3.80 per share translates to a dividend yield of 3.60% on the current share prices. The company’s dividend payouts have grown at a CAGR of 1.5% over the past three years and 2.7% over the past five years.

The stock trades lower than the 50-, 100-, and 200-day moving averages, indicating a downtrend. However, Wall Street analysts expect the stock to reach $128.32 in the next 12 months, indicating a potential upside of 21.6%. The price target ranges from a low of $105 to a high of $150.

Institutions hold roughly 60.4% of XOM shares. Of the 3,637 institutional holders, 1,589 have increased their positions in the stock. Moreover, 147 institutions have taken new positions (9,154,521 shares).

For the fiscal fourth quarter ending December 2023, analysts expect its revenue and EPS to be $92.28 billion and $2.20, respectively.

Chevron Corporation (CVX)

Boasting a market cap of over $275 billion, CVX offers administrative, financial management, and technology support services for energy and chemical operations.

The firm's recent $53 billion acquisition of Hess, recognized as one of the largest operators in North Dakota's Bakken shale play, substantiates its massive investment amid the global shift towards cleaner energy. Even though this transaction could slightly increase the region's oil production, industry analysts do not anticipate a revival to its peak pre-pandemic boom days.

Bakken oil production is anticipated to drop to 1.15 million bpd from 2026 and remain stagnant until 2030. A slow decay will follow this due to depleting reserves. It is yet to be ascertained if an infusion of new investments or technological advancements can counteract a longer-term decrease in Bakken output.

CVX also emphasizes the importance of consistent dividend distribution, demonstrating an unwavering commitment to operational diversity, having done so for an impressive 35 consecutive years. This reliability is quite remarkable considering the unpredictable nature of the energy sector.

In 2023, the company paid a dividend of $6.04 per share, which translates to a dividend yield of 4.18% on the current share prices. The company’s dividend payouts have grown at a CAGR of 5.6% over the past three years and 6% over the past five years. Although, it is worth noting that the decline in dividend payout rate over time might adversely influence investors seeking a steady source of passive income.

CVX adopts a moderate approach concerning leverage. During periods with low oil prices, the company can incur debt to finance its capital investment needs and maintain dividend payouts. When energy prices rebound, which historically they always have, the company can offset the debt. This prudent strategy offers reassurance to even the most conservative investors about the integrity of the company's dividend capabilities.

For the fiscal third quarter that ended September 30, 2023, CVX's upstream production segment earnings dipped 38.2% year-over-year to $5.76 billion. However, it increased only 16.6% from the second quarter, despite the substantial increase in oil prices.

Profit in CVX's non-U.S. production segment, accounting for about two-thirds of its total output, declined 37.7% year-over-year but increased about 12% quarterly. Its U.S. production earnings increased 26.4% quarterly but declined 39% year-over-year.

The U.S. net oil-equivalent production was up 20% year-over-year and set a new quarterly record, primarily due to the acquisition of PDC Energy, Inc., which supplemented the quarter's output with an additional 179,000 oil-equivalent barrels per day, and net production increases in the Permian Basin.

The stock trades lower than the 50-, 100-, and 200-day moving averages, indicating a downtrend. However, Wall Street analysts expect the stock to reach $189 in the next 12 months, indicating a potential upside of 30.9%. The price target ranges from a low of $166 to a high of $215.

Institutions hold roughly 71.4% of CVX shares. Of the 3,473 institutional holders, 1,718 have increased their positions in the stock. Moreover, 203 institutions have taken new positions (9,253,853 shares).

For the fiscal fourth quarter ending December 2023, analysts expect its revenue and EPS to come at $54.46 billion and $3.68, respectively.

Considering the oil stocks’ tepid price momentum, mixed analyst estimates, and financials, it could be wise to wait for a better entry point in the stocks.

Is Intel (INTC) a Bullish Powerhouse Software Stock to Buy Now?

Posted on by The INO.com Team

Intel Corporation (INTC), a world leader in the design and manufacturing of computing and other related products, reported fiscal 2023 third-quarter results, surpassing analysts’ expectations on the top and bottom lines. Also, the company provided strong fourth-quarter guidance, implying revenue growth for the first time since 2020.

After posting better-than-expected earnings, INTC’s shares surged more than 9% on Friday. Moreover, the stock crossed the 50-day and 200-day moving averages of $35.58 and $32.07, respectively, indicating an uptrend.

The chipmaker posted third-quarter adjusted EPS of $0.41, beating analysts’ estimate of $0.22. INTC’s revenue was $14.16 billion, above the consensus estimate of $13.60 billion. However, it dropped nearly 7.7% year-over-year, marking the seventh consecutive quarter of declining sales.

But INTC told investors last Thursday that it expects revenue to grow again in the current quarter.

The boost to Intel’s earnings was mainly due to gains made by its foundry business and growing interest in AI, signs of a recovery in the PC market, and management’s ability to stay on course for several initiatives it had previously laid out for the company.

“We delivered a standout third quarter, underscored by across-the-board progress on our process and product roadmaps, agreements with new foundry customers, and momentum as we bring AI everywhere,” said Pat Gelsinger, Intel CEO.

“We continue to make meaningful progress on our IDM 2.0 transformation by relentlessly advancing our strategy, rebuilding our execution engine and delivering on our commitments to our customers,” he added.

Gelsinger told analysts on a call that the company would slash costs by about $3 billion this year. CFO David Zinsner said that Intel’s EPS benefitted from controlling expenses, with operating expenses decreasing 15% from a year ago. INTC said it has 120,300 employees, a decline from 131,500 last year.

Now, let’s discuss several factors that could impact INTC’s performance in the upcoming months:

Positive Recent Developments

On October 30, Intel announced its intent to operate Programmable Solutions Group (PSG) as a standalone business. This move will give PSG the flexibility and autonomy to fully accelerate its growth and effectively compete in the FPGA industry, which serves various markets like the data center, communications, industrial, automotive, aerospace and defense sectors. 

“Our intention to establish PSG as a standalone business and pursue an IPO is another example of how we are consistently unlocking more value for our stakeholders. This will give PSG the independence it needs to keep growing share in the FPGA market, differentiating itself with capacity and supply resilience from IFS, and allowing Intel product teams to focus on our core business and long-term strategy,” said Pat Gelsinger.

On September 29, INTC’s new Fabin Ireland began high-volume production of Intel 4 technology, which uses extreme ultraviolet (EUV) technology. With its Fab 34 production milestone, Intel executes its plan to users in the future for products such as INTC’s upcoming Intel® Core™ Ultra processors, which will pave the way for AI PCs and future-generation Intel® Xeon® processors coming in 2024.

The company’s rising investments in Ireland and existing and planned investments in Germany and Poland create a first-of-its-kind end-to-end leading-edge semiconductor manufacturing value chain in Europe. They serve as a catalyst for additional ecosystem investments and innovations across the European Union (EU).

Mixed Performance in the Last Reported Quarter

For the third quarter that ended September 30, 2023, INTC’s net revenue decreased 7.7% year-over-year to $14.16 billion. Sales in its Client Computing group, including laptop and PC processor shipments, declined 3% from the year-ago value to $7.90 billion. Intel’s Data Center and AI division, which offers server chips, witnessed a sales drop of 10% year-over-year to $3.81 billion.

The company said it has been seeing competitive pressure and a smaller overall market for server processors. Also, Intel’s Network and Edge segment’s revenue was $1.45 billion, down 32% year-over-year.

INTC’s gross margin came in at $6.02 billion, a decline of 7.9% from the prior year’s quarter. However, the company’s non-GAAP operating income grew 16.3% year-over-year to $1.92 billion. Also, non-GAAP net income attributable to Intel was $1.74 billion or $0.41 per share, compared to $1.53 billion or $0.37 in the previous year’s period, respectively.

As of September 30, 2023, the company’s cash and cash equivalents stood at $7.62 billion versus $11.14 billion as of December 31, 2022.

Mixed Historical Performance

INTC’s revenue has declined at a CAGR of 12.2% over the past three years. Its EBITDA has decreased at a 39.3% CAGR over the same period. However, the company’s tangible book value and total assets have improved at respective CAGRs of 22.5% and 9.1% over the same timeframe.

PC Market Showing Signs of Recovery

After two years of steady declines due to COVID-related slowdowns, inflationary pressures, and higher interest rates, the PC industry appears to be showing signs of life, which would be a boon for INTC.

“There is evidence that the PC market’s decline has finally bottomed out,” said Mikako Kitagawa, Research Director at Gartner.

“Seasonal demand from the education market boosted shipments in the third quarter, although enterprise PC demand remained weak, offsetting some growth. Vendors also made consistent progress towards reducing PC inventory, with inventory expected to return to normal by the end of 2023, as long as holiday sales do not collapse,” she added.

According to preliminary results by Gartner, worldwide PC shipments totaled 64.3 million units in the third quarter of 2023, down 9% year-over-year. While the third quarter’s results marked the eighth consecutive quarter of decline for the global PC market, Gartner expects the market to begin recovery in the fourth quarter of 2023.

Furthermore, the agency projects 4.9% growth for the global PC market for next year, with growth expected in both the enterprise and consumer segments.

Solid Fourth-Quarter Guidance

The company’s fiscal 2024 fourth-quarter guidance implies revenue growth for the first time since 2020. Intel expects revenue to come between $14.60 and $15.60 billion. Non-GAAP EPS attributable to Intel is expected to be $0.44 for the fourth quarter.

Mixed Analyst Estimates  

Analysts expect INTC’s revenue to increase 7.5% year-over-year to $15.09 billion for the fourth quarter ending December 2023. The consensus earnings per share estimate of $0.45 for the ongoing quarter indicates a 346.7% year-over-year improvement. Moreover, the company has topped the consensus revenue estimates in three of the trailing four quarters.

However, the company’s revenue and EPS for fiscal year 2023 are expected to decline 14.7% and 48.5% year-over-year to $53.76 billion and $0.95, respectively.

For 2024, Street expects INTC’s revenue and EPS to grow 13% and 98.8% year-over-year to $60.73 billion and $1.89, respectively.

Bottom Line

Although INTC’s third-quarter earnings and revenue beat analyst estimates, its revenue declined from the year-ago period. After reporting better-than-expected earnings, primarily driven by growth in its foundry business, rising interest in AI, and signs of a recovery in the PC market, the chipmaker expects revenue to grow in the fourth quarter.

While the PC market is recovering after two years of sales declines, there could be a delay in the full recovery of demand for PCs due to prevailing macroeconomic uncertainties. Also, Intel continues to grapple with increased competition and production challenges that could limit the potential for gains in its stock in the near term.

Given its mixed financials and uncertain near-term prospects, it could be wise to wait for a better entry point in the stock.

Snap (SNAP): Insider Insights Suggest a Lucrative Long-Term Internet Buy

Posted on by The INO.com Team

Shares of Snap Inc. (SNAP), the parent company of leading social media platform Snapchat, with a market cap of over $15 billion, witnessed a 12% uptick after an internal memo from CEO Evan Spiegel revealed ambitious forecasts to have over 475 million daily active users (DAUs) in 2024, above the 447 million Wall Street projection. According to the memo, the company foresees more than 20% growth in its advertising revenue for the year 2024. The firm's 2023 objectives also include achieving an adjusted EBITDA of $500 million.

The positive response from investors comes on the heels of an "incredibly low" sentiment period surrounding SNAP's financial future, as SNAP was the first ad-reliant social media company to signal dwindling ad demand amid macroeconomic challenges such as burgeoning inflation rates and intense competition among social media platforms.

SNAP has endured several financial setbacks in recent years, shedding nearly 80% of its valuation last year while confronting negative top-line growth in the first quarter of 2023. Such figures have prompted genuine concern over the company's long-term viability. With lousy revenue performance and persistent quarterly net losses, it was unclear whether the company could live up to its premium valuation.

Of the nine targets set by SNAP, significant user engagement – manifested through a 10% increase in the time spent by users consuming content has been its sole accomplishment. However, the encouraging growth forecast has sat well with investors grappling with the company's overall underperformance, straddled by a weak advertising market and stiff competition from AI-based solutions.

Though the company confirms SNAP’s revised 20% revenue growth rate and prospective DAU figures as “stretch, internal goals only,” they still offer a promising outlook. Investors would do well not to hinge entirely on these projections, even as they bolster SNAP's growth narrative.

Investors might want to consider the following additional factors:

Developments and Mixed Financials

SNAP recently posted its third-quarter earnings report. The social media firm's revenue rose 5.3% year-over-year to $1.19 billion, surpassing analysts' expectations. The surge was the first after two consecutive quarters of decline. Although the firm's adjusted income dropped by 75% year-over-year to $0.02 per share, it still marginally surpassed the consensus forecast. As of September 30, 2023, its accumulated deficit stood at $11.29 billion.

Moreover, the company witnessed an 11.8% year-over-year rise in DAUs, reaching 406 million. Since introducing its AI chatbot "My AI," the company reports a substantial engagement of over 200 million people who have exchanged over 20 billion messages.

Snap believes these metrics catapult 'My AI' to join the ranks of some of the most widely utilized AI chatbots today. The company has also launched a new innovative feature powered by Generative AI, 'Dreams.' This addition offers Snapchatters the innovative capability of creating generative AI selfies.

Institutional Ownership

Several institutions have recently modified their SNAP stock holdings. Institutions hold roughly 51.5% of SNAP shares. Of the 628 institutional holders, 215 have increased their positions in the stock. Moreover, 69 institutions have taken new positions (62,532,200 shares).

Price Performance

SNAP cleared Wall Street's low bar, but its stock slumped after the report and remains nearly 46% below its IPO price. SNAP’s stock is trading below its 100- and 200-day moving averages, indicating a downtrend.

However, Wall Street analysts expect the stock to reach $10.08 in the next 12 months, indicating a potential upside of 8.4%. The price target ranges from a low of $7 to a high of $14.

Bottom Line

SNAP's bold aspirations for 2024 imply that the company’s visibility may be on the upswing, likely attributable to advancements in its advertising products. These improvements could signal a pivotal moment for SNAP, potentially heralding the return of solid growth.

SNAP’s inflated valuation is evident from its forward non-GAAP P/E and EV/Sales of 135.63x and 3.44x, 910.3% and 101.4% higher than the industry averages of 13.42x and 1.71x, respectively.

However, it is noteworthy that if SNAP’s revenue growth rates exceed 20% and adjusted EBITDA increases to $500 million by year-end 2023, the stock could be highly undervalued.

Looking forward to the remainder of the year, SNAP’s management has recognized halts in spending from many brand-focused ad campaigns following the ongoing Middle East conflict. Because of this, the company refrains from issuing formal guidance for the fourth quarter of 2023.

Despite this, internal forecasts predict fourth-quarter revenue between $1.32 billion and $1.375 billion, or a growth of 2% to 6%, implying a continued surge in DAUs to between 410 and 412 million.

Analysts expect its revenue for the fiscal fourth quarter ending December 2023 to increase 4.6% year-over-year to $1.36 billion, while its EPS is expected to decline 63% year-over-year to $0.05.

Due to SNAP’s stretched valuations, mixed financials, and varying analyst estimates, investors should proceed with caution. A more lucid understanding of SNAP’s potential for sustainable growth might be necessary before confident investment decisions can be made. Hence, it could be wise to wait for a better entry point in the stock.