It has been about a month since the last earnings report for Intel Corporation (INTC Quick QuoteINTC - Free Report) . Shares have added about 5.4% in the past month, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is INTC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Intel reported fourth-quarter 2017 non-GAAP earnings of $1.08 per share, which beat the Zacks Consensus Estimate by 22 cents. The figure surged 36.7% from the year-ago quarter and 6.9% sequentially.

After adjusting for aone-time tax expense of $5.4 billion, as a result of the U.S. corporate tax reform, GAAP loss came in at 15 cents per share in the quarter.

The robust earnings growth was driven by better-than-expected top-line performance and operating margin expansion. Moreover, Intel Channel Alliance Program (ICAP) contributed 14 cents to quarterly earnings.

Revenues totaled $17.05 billion, reflecting an increase of 4.1% year over year and 5.6% quarter over quarter. The figure beat the Zacks Consensus Estimate of $16.31 billion. After adjusting for the McAfee (formerly Intel Security Group) transaction, revenues increased 8%.

The top-line growth came on the back of impressive results from Data Center Group (DCG), Internet-of-Things Group (IOTG), Non-Volatile Memory Solutions (NSG) and Programmable Solutions Group (PSG), which contributed almost 46.4% (up from 44% in the third-quarter) of the total revenues. These segments form the crux of Intel’s data-centric business, which increased 21% year over year in the fourth quarter.

2017 Results Were Impressive

Intel reported revenues of $62.76 billion, a lot better than the Zacks Consensus Estimate of $62.02 billion. After adjusting for McAfee, revenues increased 9% driven by 16% growth in data-centric business and 3% growth in PC-centric business.

Operating income increased 18% to $19.6 billion driven by strong execution across all the businesses and discipline spending.

Earnings surged 27.2% to $3.46 per share, which was also better than the Zacks Consensus Estimate of $3.25. ICAP contributed 35 cents to earnings, which management doesn’t believe will get repeated in 2018.

Fourth-Quarter Segment Revenue Details

Client Computing Group (52.5% of revenues) – Intel bundles PCs, notebooks, 2-in-1s, tablets, modem, home gateway products and set-top box components under the Client Computing Group (CCG) segment, which aids comparison with the PC market numbers provided by IDC and Gartner.

Revenues declined 1.9% on a year-over-year basis but increased 1.1% sequentially to $8.95 billion. Desktop revenues declined 8%, while notebook was almost flat. Modem and adjacencies (home gateway products and set-top box components) revenues increased 15% during the quarter.

On a year-over-year basis, desktop platform volumes declined 5%, while notebook platform volumes increased 5%. Average Selling Price (ASP) for desktop and notebook declined 2% and 5%, respectively.

DCG (32.7% of revenues) – Revenues increased 19.6% year over year and 14.4% sequentially to $5.58 billion. Platform volumes increased 10%, while platform ASP was up 8% on a year-over-year basis. Sequentially, platform volumes were up 3%, while ASP increased 12%.

Per Intel, cloud revenues advanced 35%, driven by robust volume growth and continued customer preference for higher performance products. Commercial service provider revenues grew 16% primarily due to strong adoption of IA-based solutions. Revenues from adjacencies surged 35% year over year.

Enterprise & Government was up 11%. Enterprise benefited from strong ASPs driven by continued customer transition to Xeon Scalable product. Apart from strong on-going demand for public clouds, the company also observed strength in on-premise and hybrid cloud build-outs.

During the quarter, Intel shipped its first customer unit of first generation Nervana Neural Network Processor.

Lately, the company’s Movidius vision processing has gained strong adoption. The processor was selected by Alphabet’s Google division to develop its AIY vision kit. Amazon.com is also using the processor in its DeepLens, the world's first deep learning enabled video camera for developers.

Darvas' recently announced deep sense product line combined core CPU, Intel FPGA-based network video recorders along with Movidius VPU-based cameras.

IOTG (5.2% of revenues) – Revenues jumped 21.1% from the year-ago quarter and 3.5% quarter over quarter to $879 million. The growth was backed by strength in retail, video and transportation applications.

NSG (5.2% of revenues) – Revenues increased 8.9% year over year but remained almost flat sequentially at $889 million. The year-over-year growth was driven by strong demand for data center FFT solution and demand signals outpacing supply.

PSG (3.3% of revenues) – The Altera business is now the Programmable Solutions Group, which jumped 35.2% from the year-ago quarter and 21.1% sequentially to $568 million. Strength in data center, automotive and embedded drove top-line growth.

During the quarter, Intel launched FPGA SDK for OpenCL solution. The company also expanded the features of the Stratix 10 product line that now includes the first SoC FPGA with an armed processor at more than 1 million logic elements and the industry's first FPGA with integrated HBM2 memory.

Intel also has a residual segment, which now includes results of operations from MobilEye, New Technology Group and other adjustments. The segment reported revenues of $181 million down 70.6% year over year and 10.4% sequentially.

Mobileye generated $128 million in revenues, increasing from $82 million delivered in the third-quarter 2017. The company has already launched 15 new programs in 2018. Intel currently has level two plus and level three design wins with 11 automakers that collectively represent more than 50% of global vehicle production.

During the quarter, Intel announced level through five autonomous driving platform based on EyeQ5 and Atom, which will sample over the next few months.

Operating Details

The gross margin for the quarter was 64.8%, which expanded 170 basis points (bps) on a year-over-year basis and 90 bps sequentially, better than management’s guidance.

Research & development (R&D) expenses and marketing, general & administrative (MG&A) expenses decreased 5.8% on a year-over-year basis but increased 7.3% sequentially to $5.12 billion, higher than management’s guided figure of $5.10 billion.

As percentage of revenues, R&D and MG&A declined 320 bps on a year-over-year basis but increased 50 bps sequentially in the quarter.

Intel stated that total spending declined 6% in the reported quarter.

The operating margin was 34.8%, up 490 bps year over year and 40 bps sequentially. Segment operating margin expanded 400 bps on a year-over-year basis and remained unchanged sequentially.

CCG operating margin was 36.4% compared with 38.6% in the year-ago quarter. The contraction was primarily attributed to higher costs related to 10 nm technology. Intel noted strength in the commercial gaming business. The company also believes that the worldwide PC supply chain is in a healthy state. On a sequential basis, CCG operating margin contracted 420 bps.

DCG operating margin was 53.6% up significantly from 40.3% delivered in the year-ago quarter. Operating margin was positively impacted by improving revenue scale and strength in ASP. Sequentially, segment margin expanded 740 bps.

IOTG operating margin was 29.6%, up from 25.1% in the year-ago quarter and 17.2% in the third-quarter 2017.

NSG reported profit of $31 million against a loss of $91 million in the year-ago quarter and $52 million in the previous quarter. Operating profit resulted from higher yields as well as declining cost per Gigabyte (GB).

PSG reported operating income of $156 million, up 95% year over year and 38.1% sequentially.

Balance Sheet & Tax Details

In fiscal 2017, Intel generated approximately $10.3 billion in free cash flow, paid dividends worth $5.1 billion and bought back shares worth $3.6 billion.

Intel funded a majority of the Mobileye acquisition from the sale of non-core assets including McAfee and the sale of ASML shares. The company sold 11.4 million of ASML shares in the fourth-quarter, which resulted in a gain of $1.5 billion.

The company also redeemed 1.6 billion in 2035 convertible debt reducing 59 million shares. The company also redeemed 425 million of all debt for cash that reduced leverage and interest expense. Intel also tendered higher coupon debt ($1.9 billion) for lower coupon debt ($2 billion).

Intel's fourth-quarter results reflect a higher GAAP income tax expense of $5.4 billion. The figure includes a one-time required tax adjustment on previously untaxed foreign earnings payable over eight years, which was partially offset by the re-measurement of deferred income taxes according to the new U.S. statutory tax rate.

Intel also raised its quarterly cash dividend payout by 10% annually.

Guidance

Intel guided first-quarter 2018 non-GAAP revenues of around $15 billion (+/-$500 million), up 5% year over year excluding McAfee.

Data-centric part of the business is projected to grow in the mid-teens range, while PC centric is expected to decline in low single digits.

Gross margin is expected to decline almost 3 percentage points and spending as a percent of revenues is expected to fall 3 points.

Non-GAAP operating margin is projected to be roughly 27%, while earnings are anticipated to be 70 cents (+/- 5 cents) per share, up 15% on a year-over-year basis.

For fiscal 2018, management expects revenues of almost $65 billion (+/- $1 billion), up 4% year over year excluding McAfee.

Data-centric part of the business is projected to grow in the mid-teens range, while PC centric is expected to decline in low single digits for fiscal 2018.

Gross margin is expected to decline 2-2.5 percentage points and spending as a percent of revenues are expected to decrease 1-1.5 points. The gross margin decline is primarily expected due to growth in the adjacent businesses and transition costs related to 10 nm technology partially offset by higher gross margin from 14 nm products.

Operating margin is projected to be roughly 30%. Earnings are anticipated to be $3.55 (+/- 5%) per share. The bottom-line is anticipated to be driven by strong top-line growth and lower tax rate of approximately 14% (a positive impact of 28 cents).

Management expects NSG to remain profitable in 2018.

Intel now expects the tax rate for 2018 to be approximately 14%. This will be because of lower U.S. statutory tax rate of 21%, lower tax on foreign income benefits of U.S. exporters and the continuation of the R&D credit.

Full-year capital expenditure is expected to be $14 billion (+/-$500 million). Net capital deployed, which is capital spending offset by expected prepaid supply agreements in Intel’s memory business, is projected to be $12 billion (+/-$500 million). Free cash flow is expected to be $13 billion (+/-$500 million).

Intel now expects to achieve total spending target of 30% of revenues “no later than” 2019, instead of its earlier projection of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum.

Intel Corporation Price and Consensus

 

Intel Corporation Price and Consensus | Intel Corporation Quote

VGM Scores

At this time, INTC has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise INTC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.