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Stock Analyst Update

Intel Sell-off Isn't a Buying Opportunity

Wait for cheaper shares or a more positive outlook.

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What Happened?
Intel (INTC) warned investors Thursday evening that both growth and margins would fall below expectations due to weak demand in Europe. Top-line growth will only be in the neighborhood of 3% to 5% over the prior quarter, which will be much lower than the 8% to 10% growth that the Street was expecting prior to Thursday's announcement. After factoring in lower-than-expected margins alongside the slower revenue growth, Intel will probably generate earnings $0.03 to $0.04 per share lower than the First Call consensus estimate of $0.41 per share.

What It Means for Investors
Prior to Thursday's earnings warning, our thesis on Intel has been that the stock had too much riding on the firm’s performance in the seasonally important third and fourth quarters, given the stock’s high valuation. Although the shares are now more than 35% off their recent 52-week high of roughly $76, we still think that investors should continue to take a cautious approach toward Intel. The combination of uncertain demand, increased competition from Advanced Micro Devices (AMD), and a less-than-compelling valuation does not, in our view, add up to an attractive buying opportunity.

Jeremy Lopez does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.