Intel: Analysts Are Divided After The Company's Big Year-to-Date Rally and the New CEO’s Growth Plans
Intel (INTC) has been a battleground stock for investors for several years now. The company operates in an incredibly competitive industry where fierce disruption is happening on a constant basis. Intel, which was once considered the world’s gold standard in the semiconductor space, now has to fight for market share with large competitors in all of its revenue segments. And frankly, in recent years, this competition hasn’t been going well for Intel, which was seen losing market share to competitors like Advanced Micro Devices (AMD) and NVIDIA (NVDA) in the most attractive end markets. However, Intel recently hired a new CEO, Pat Gelsinger, who recently laid out his vision for the company’s future which really grabbed investor’s attention. Gelsinger’s presentation alongside the stock’s recent rally has pushed Intel up towards the top of the most talked about stocks that we track with our equity algorithm.
During his presentation, Gelsinger proclaimed, “Intel is back. The old Intel is now the new Intel.” While the idea of “old” being good in the market is a fairly novel one (in the technology sector, most of the time, investors are looking for companies to push the envelope, adept, and evolve into new, competitive beasts over time), in Intel’s case, investors would love to see the company regain its former dominance.
The biggest part of INTC’s announcement was that it plans on investing approximately $20 billion in two new foundry plants in Arizona, boosting the company’s production abilities. Prior to the announcement, analysts wondered whether or not Intel was going to give up on its foundry assets, due to the fact that it has fallen so far behind its peers when it comes to its manufacturing capabilities.
However, with rising supply shortage concerns in the semiconductor space, as well as national security issues being brought up in Washington regarding the United State’s lack of foundry assets and its reliance on Asian semiconductor manufacturing, Intel’s big investment appears to solve several major concerns for the company and the global market place at once. Gelsinger made it clear in his presentation that not only will Intel be focused on manufacturing its own chips, but the company’s new facilities will give it the capability to license its current intellectual property and serve as a foundry for other chip companies as well.
An interesting theme that we’ve seen develop in the technology sector throughout 2021 is a rotation from the more speculatively valued, high growth stocks back into the more defensive, “old tech” companies noted for their strong balance sheets and cash flow generation. It appears that Intel’s messaging, about returning to the “old Intel” plays right into this trend. This defensive move by the market has benefitted Intel greatly, whose shares are now up 30.21% year-to-date, marking one of the best starts to a year that the company has seen in its long history.
Yet, even after this big move, which as Richard Saintvilus, a 5-star Nobias analyst points out, has coincided with the company replacing former CEO, Bob Swan with Gelsinger, who was the previous CEO at VMWare, the company appears to offer intriguing value. In Saintvilus’s March 25th article, he said, “fundamentally, Intel offers tons of value, trading a forward P/E of just 13, compared to a 19 P/E for the S&P 500 index.” Saintvilus’s piece highlighted Intel’s recent full-year earnings-per-share guidance, which calls for the company to produce $4.55 on the bottom-line during 2021.
At the company’s current share price of $64.87, this represents a 14.25x forward multiple. This 14.25x multiple is well above Intel’s 10-year average price-to-earnings premium, which currently sits at 11.98x. However, it’s important to note that INTC’s earnings-per-share are expected to fall roughly 14% in 2021 because of increased capital expenditures. On a trailing basis, Intel shares are trading in-line with their long-term average.
Without a doubt, Intel’s future plans are ambitious. As Saintvilus points out, while the new CEO has been the “key catalyst” to the company’s recent share price rally, ultimately, it will be “his ability to execute, including reaching/beating these growth targets, will be ultimately how he’s judged.”
It’s rare to find blue chips like Intel trading at discounted valuations in today’s market. The S&P 500 continues to trade at a steep premium relative to its historical average, and with the broad markets trading near all-time highs, value investors are finding attractive opportunities to put cash to work few and far between.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
However, in an efficient market, stocks are generally cheap for a reason. And, as previously noted, Intel’s low growth prospects, due to increased competition, have held the stock’s valuation down at levels much lower than its peers. The tug-of-war here, between bulls and bears attempting to prioritize growth and value is a very interesting story.
Right now, amongst the 4 and 5-star analysts that Nobias tracks, we see 8 “buy” ratings on the stock as well as 8 “sell” ratings. The commentary here is divided equally, with compelling analysis being made by individuals situated on either side of the bull/bear aisle. The risk/reward situation with Intel is delicate because so much of the competition it faces.
As a recent Judie Simms article on Fintech Zoom mentioned, according to Jefferies analyst, Mark Lipacis, “Intel is at least 2.5 years behind its Taiwan-based rival [Lipacis is talking about Taiwan Semiconductors (TSM)] and will have difficulty closing the gap.” Simms also says that Bank of America security analyst Vivek Arya posted a recent note to clients in which he said that Gelsinger “offered no evidence that Intel can match or exceed Taiwan Semi’s manufacturing capabilities for most advanced chips.”
Arya mentioned that TSM has plans to build out manufacturing capabilities in the U.S. as well, further complicating Intel’s catch up plans. Yet, Saintvilus believes that the company’s recent announcement about 7nm chips becoming available in Q2, as well as its new partnership with International Business Machines (IBM), “put the company back on a path to regain a leadership position in process technology.”
Disclosure: Nicholas Ward has a long position in Intel (INTC) and Nvidia (NVDA). Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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