5 Reasons To Stay Positive On Intel

Despite rival Advanced Micro Devices, Inc. AMD making headway with its strong product momentum, Bank of America is convinced Intel Corporation INTC shares present investors with a buying opportunity.

The Analyst

Vivek Arya reiterated a Buy rating on Intel and upped the price target for shares from $65 to $70, suggesting roughly 21% upside from current levels. (See his track record here)

The Thesis

Arya said Intel bears are overlooking Intel's powerful incumbency/portfolio breath, expanding size of computing market, attractive valuation when weighed against secular drivers in 5G, AI, cloud computing, potential for rightsizing the operating model, its U.S.-based manufacturing base and buybacks.

The ongoing capacity shortages, according to the analyst, though presenting a headwind, could further extend the enterprise Windows 10 PC upgrade cycle into 2020.

Arya finds the following five as compelling reasons to stay positive on Intel.

Outperformance: Intel is likely to see second consecutive year of year-over-year sales growth in 2019, outperforming the core semiconductor sector, excluding memory, by more than 500 basis points, Arya said. The analyst estimates 4% year-over-year sales growth in 2020.

Rightsizing Opportunity: The analyst sees the relatively new management at the helm at Intel, which has extensive external experiences, being more open to changes such as exiting low-value activities, engaging in partnerships and reducing opex intensity by an incremental 200 basis points.

Massive Buybacks: Intel's $20 billion buyback authorization, representing about 7% of the market cap, for the next 5-6 quarters, is being underappreciated by the market, Arya said in the note.

Expanding Computing Market: The analyst, though acknowledging the AMD threat to be real said it's already baked into the consensus estimate. Intel is also well positioned to take advantage of the expanding size of the computing market and its portfolio breadth.

Compelling Valuation: Arya noted Intel is trading at 12.5 times forward PE multiple, a 32% discount to the Philadelphia Semiconductor Index. Intel has been underweighted by U.S. fund managers, with only 39% of sell-side analysts rating the shares as a Buy, he added.

Price Action

Intel's stock traded down 0.5% to $57.78 at time of publication. Shares have traded in the 52-week range of $42.86-$59.59.

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