Canaccord Says Intel Is 'A Compelling Long-Term Investment'

Canaccord upgraded Intel Corporation INTC Thursday from Hold to Buy and lowered its price target from $40 to $38. Analyst Matthew D. Ramsay felt that Intel had "reset PC expectations" to more realistic levels and believed that investors could now buy the shares following a YTD pullback of 15 percent "without fear of a false PC bottom." Ramsay noted that losses from mobile remained heavy, however, the company had "strong secular momentum supporting 15 percent+ DCG and 20 percent+ IoTG growth potential" while its modem/SoC designs were "gradually closing the gap in a quickly thinning herd of competitors." The analyst thought that mobile results would improve in 2015 and 2016 with "lower platform costs and gradual LTE and SoFIA revenue ramps." The firm lowered its Q1 2015 Personal Computer Client Group (PCCG) revenue estimate from $8.2 billion (+3 percent YoY) to $7.3 billion (-8 percent YoY) and modeled a decline in PCCG sales of 10 percent YoY in 2015 to $31.3 billion which reflected "softer enterprise sales and lower ASPs." Commenting on the reduced sales estimates, Ramsay admitted it was not good news, however, the analyst believed "the removal of unrealistic PC expectations actually makes Intel shares more investible and the Win10/Skylake refreshes during 2H/15 could even provide modest upside to lower expectations." Ramsay concluded that Intel shares "represent a compelling long-term investment" and the analyst encouraged "investors to take advantage of the stock pullback and reset of PC expectations to buy shares now more leveraged to the strong fundamentals in DCG and IoTG." The $38 price target was based on shares trading at approximately 15x the firm's estimated 2016 GAAP EPS of $2.55 or approximately 14x its non-GAAP estimate which excluded stock-based compensation. Intel Corporation recently traded at $30.78, down 0.06 percent.