Intel (NASDAQ: INTC) stock is beaten down, but the bottom is in, and the rebound is on. Headwinds persist and may impact price action in the near term but are offset by proof the turnaround is working, and momentum is building. Takeaways from the Q3 results include top and bottom-line outperformance, sequential earnings growth, and better-than-expected guidance that may be cautious. If management can continue to execute plans as it has, shares of the stock should trend higher for the next several years. 

#1) Intel is executing and delivering results

Intel had a solid quarter despite a contraction in revenue compared to last year. Revenue fell nearly 8% but outpaced the Marketbeat.com consensus by 430 basis points, and the strength was leveraged to the bottom line. Results were mixed segmentally, with 3 of the 5 operating segments contracting and only 2 expanding. Expansion occurred in Mobileye (NASDAQ: MBLY) and Foundry, the budding growth segment, while sales in the Client Computing Group fell only 3% to lend evidence of industry normalization. 

Earnings news is equally good, with adjusted $0.41 $0.18 or nearly 8000 basis points better than expected. The outperformance is due in part to operational leverage and revenue strength and also to operational quality. The adjusted operating margin widened by 280 bps and is expected to remain strong. 

#2) Momentum builds, Intel guides higher

Intel’s guidance provided guidance that exceeded the analysts' expectations. The company expects Q4 revenue in a range whose low end expects sequential and YOY growth while topping the consensus estimate by 170 basis points. The earnings guidance is equally strong at $0.44 compared to the $0.32 pre-release consensus estimate. This has the analysts raising their targets for the quarter and next year. Based on the past 3 quarters' results, the guidance and the analysts are too cautious. 

#3) Analysts raise targets for Intel; it’s wait-and-see time

The analysts tend to favor Intel, although Rosenblatt reiterated a Sell rating following the Q3 release. Other analyst activity included a reiterated Buy with a target above consensus, an upgrade, and 1 price target increase with the stock pegged at a consensus Hold and the price target increasing. While the price target isn’t much of a catalyst at $34, most of the fresh targets are above consensus and leading the market into a reversal. 

Takeaways from the analysts' chatter are that PC strength is underpinning results, and PC markets should return to growth next year. Mizuho expects low to mid-single-digit growth in the PC market and a chance for new traction in the data center market. JPMorgan says the results are good, but the team at Intel faces a tough road with several large product launches over the next 2-3 quarters. 

#4) Intel’s dividend: a return-to-growth story 

Intel caught the market by surprise when it cut its dividend after years of sustained increase, but that is water under the bridge. The company’s new payment is right-sized for the times and sustainable (reliable) for investors. Trading near $35, the payout aligns with the broad market average, and there is a chance the company could resume dividend increases. The idea that business will return to growth while effecting significant operational improvement suggests the dividend could return to growth as well. 

As it is, the payout ratio is about 50% of the 2023 earnings outlook and 25% of the 2024 consensus. The balance sheet shows the impact of turnaround efforts and reinvestment with cash down and long-term debt up, but leverage remains low and cash flow sound. Assuming the company continues to execute as it has, an increase could come at the end of the next fiscal year. 

#5) The technical outlook: Intel confirms bottom

The price action in Intel shares hit the bottom in late 2022 and began to reverse early in 2023. Since then, the market has moved above critical resistance, spiked, and corrected to confirm support at the same critical level. This is consistent with a complete reversal in the market and signals the potential for a sustained rally. If the market follows through on the signal, the next hurdle is near $40 and the 150-day EMA;  a move above there would be very bullish. If not, shares of INTC will break support near $32 and continue to move within its established range until there is more evidence of business improvement.