Sell-Side Guarded On Intel Despite Beat-And-Raise Quarter: 'Cycle Risk A Deterrent'

Intel Corporation INTC seems to have allayed the Street's fears with a top- and bottom-line beat in Q3, as well as a positive guidance reset.

The Analysts

Oppenheimer analyst Rick Schafer maintained a Perform rating on Intel shares.

BMO Capital Markets analyst Ambarish Srivastava maintained an Outperform and lowered the price target from $62 to $58.

Morgan Stanley analyst Joseph Moore maintained an Equal-weight rating and raised the price target from $50 to $54.

Charter Equity Research analyst Edward Synder reiterated a Buy rating.

KeyBanc Capital Markets analyst Weston Twigg maintained a Sector Weight rating.

Oppenheimer Remains On Sidelines 

Intel's Q3 results likely tempered constraint and share loss concerns, Oppenheimer's Schafer said in a Friday note.

Data-centric businesses grew a solid 22 percent compared to a more modest 16-percent growth for PC-centric businesses, the analyst said. 

The chipmaker reaffirmed the availability of 10nm processors for PCs in the fourth quarter of 2019, Schafer said.

With Intel focusing on Xeon and Core processors to service the high-end market, Advanced Micro Devices, Inc. AMD may have an opportunity to make inroads into the PC segment by capitalizing on the constraints in low-end PC and IoT, he said. 

Notwithstanding the stellar Q3, Oppenheimer said gross margin headwinds and below-peer top-line growth/FCF leverage keep it on the sidelines on Intel stock. 

BMO Sees Execution, Discipline Improving

Execution and discipline in operating leverage toward the company's target model are improving, BMO's Srivastava said in a note. 

Despite talk of share loss in desktop CPUs, the analyst said Intel's ASP rose 10 percent. While noting that data center group growth, especially the cloud, was solid, Srivastava said it could moderate going forward.

BMO raised its estimates for Intel, citing higher revenue and lower operating expenditures partially offset by a higher tax rate in 2019. 

Morgan Stanley: Threats To Market Share Overstated

Intel reported much stronger-than-expected results, with upside in all core compute segments, Morgan Stanley's Moore said in a note.

The analyst sees some data center deceleration as being inevitable.

Threats to market share around the delayed 10 nm transition are overstated, he said. 

More aggressive cost cutting from Intel's next CEO presents a large opportunity, Moore said. 

"But even without that, there should be some multiple expansion if the company can continue to earn $4-plus while clearly demonstrating their ability to manage the business competitively." 

Intel's Results Could Dent Bear Thesis, Charter Says 

Materially higher Q3 revenue and limited capacity allowed Intel to prioritize its mix toward high-margin products, resulting in high average selling prices and a strong sequential improvement in gross margin, Charter's Snyder said in a note. 

"With demand running ahead of capacity in both Q3 and Q4, it seems certain backlog and factory utilization will keep revenue and margins elevated in [the first half of 2019]," the analyst said.

"So while we don't expect Intel's report to singlehandedly dispel the fears plaguing the semiconductor sector, it puts a big dent in the bear case by disabusing investors of the idea that the semiconductor cycle is slowing and the trade war is impacting demand."

KeyBanc: Execution, Product Traction Impressive, But Cycle Risk A Deterrent

Intel's execution and product traction remain impressive even as the company continues to scout for a new CEO, KeyBanc's Twigg said in a note. 

The analyst raised estimates for Intel, citing the company's guidance and commentary.

"We remain Sector Weight, as we see increasing cycle risk as well as secondary risk regarding slowing node transitions and changing competitive dynamics." 

The Price Action

Intel shares have added 0.8 percent year-to-date period.

Intel shares were up 3.6 percent at $45.90 at the time of publication Friday. 

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