Intel Analysts Debate: Should Investors Buy The Dip?

Intel Corporation INTC reported mixed fourth-quarter results, which fell short of expectations on the revenue line while management's first-quarter revenue guidance also fell short of expectations.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Morgan Stanley's Joseph Moore maintains an Equal-weight rating on Intel with an unchanged $55 price target.
• Bank of America's Vivek Arya maintains at Buy, price target lowered from $60 to $57.
• UBS's Timothy Arcuri maintains at Buy, price target lowered from $60 to $58.
• Baird's Tristan Gerra maintains at Outperform, price target lowered from $64 to $60.
• KeyBanc Capital Markets' Weston Twigg maintains at Sector Weight, no price target.
• MKM Partners' Ruben Roy maintains at Buy, unchanged $58 price target.
• RBC Capital's Markets' Amit Daryanani maintains at Sector Perform, price target lowered from $55 to $50.

Shares of Intel were trading lower by more than 5.6 percent at $46.93 ahead of Friday's market open.

Morgan Stanley: Part Of The Debate Resolved

Heading into Thursday's print, it was unclear if Intel would be impacted by macro trends and cloud weakness, Moore said in a research report. The answer to this key bull debate is yes. Specifically, Intel's data center performance in the quarter fell short of expectations and management's first-quarter guidance implies a year-over-year decline.

Moore said management's full-year 2019 guidance also implies a better than seasonal improvement in the key business segment and investors should "feel better about the stock." Beyond 2019, however, the company is likely to show minimal growth through 2020 and the real opportunity for Intel's stock to move higher hinges on more aggressive cost-cutting initiatives.

Related Link: Chip Earnings Preview: AMD Set To Report Amid Changing Competitive Landscape, Cycle Risk

Bank Of America: Reset Bar

Despite Intel posting a rare revenue miss and offering a "sluggish" outlook for 2019, the bullish case for the stock remains unchanged for four reasons, Arya said. These include:

• Management's guidance could be conservative after a 29 percent upward EPS revision in 2018;
• Management's 1 percent sales growth outlook for 2019 is superior compared to its large-cap peers that are likely to show flat or negative organic sales;
• Free cash flow can come in above 10 percent which is also better than its peers; and
• Cloud and communications demand could improve in the back half of 2019.

UBS: Story 'About To Change'

Arcuri said Intel's report failed to update investors on two key stories: manufacturing and the announcement of a new CEO. As such, Intel's stock is justifiably trading lower since "we got nothing new" but Intel's story could improve when these issues are resolved.

Under a new leader, Intel could exit the memory business and the money losing modem business which will open up $3.3 billion per year in free cash flow. The analyst said this optionality outweighs the potential downside and investors are encouraged not to "miss the forest for the trees."

Baird: 2019 Catalysts Unchanged

Intel boasts two key catalysts in 2019 that remain unchanged, Gerra said. These include 10nm execution and 14nm capacity increases, which could help boost overall gross margins from a channel refill. Also, Intel's data center business could see its market share stabilize from Cascade Lake and more dynamic pricing.

KeyBanc: Intel Needs A Strong Recovery

Intel's 2019 revenue guidance growth of 1 percent requires the company to see a "sharp recovery" in the data center business in the back half of 2019 along with "reasonably good" PC demand and strong growth in modems and programmable solutions, Twigg said. If the company doesn't perform as expected or shows additional 10nm delays, there is downside risk to current estimates.

Related Link: Goldman Sachs Shares Semiconductor Stock Picks For A Challenging 2019

MKM: Attractive Valuation

Intel's stock continues to trade at a notable discount to its semiconductor peers at just 10.8 times 2019 EPS estimates versus the group average of 15.6 times, Roy said. The valuation discount may not be fully warranted given the company's profitability metrics, improving cash flow profile, a dedication to return capital to shareholders and a growing total addressable market expansion opportunity across multiple end markets.

RBC: Moderation In Momentum

Intel's 2018 performance was "robust" in both the data center PC businesses so management's moderation of guidance is the right move for the future, Daryanani said. But at the same time multiple uncertainties remain in place, which implies a more negative outlook, including the CEO search, channel inventory dynamics and 2019 guidance implies a "hockey stick" re-acceleration in the data center business.