Intel's Stock Downgraded: 'The First Step Is Always Denial'

Bernstein’s Stacy Rasgon believes Intel Corporation INTC “is facing structural headwinds as datacenter weakens, quality growth becomes more elusive, and competition increases.”

The analyst downgraded the rating on the company from Market Perform to Underperform, while lowering the price target from $36 to $30.

Downward Spiral

Rasgon sees the stock as expensive, especially given that fundamentals are expected to worsen, while capex is expected to reach record highs.

“We may be a little early on this, but we don't think we're wrong; on the back of a potentially multi-year re-rating we believe the time has come to put a stake in the ground,” the analyst stated.

Rasgon believes Intel is at the beginning of a multi-year “structural case,” with Datacenter beginning to slow down, growth targets being reset and margins beginning to compress.

Related Link: Intel And AMD Going In Opposite Directions

Increasing Competition

In addition, the environment is becoming increasingly competitive, and the company continues to have high dependence on less attractive “adjacencies.”

The analyst also believes Intel “needs growth to maintain manufacturing scale as core PCs decline, resulting in significantly increased spending but nothing they have on the table for growth is as good as their current businesses have been.”

Rasgon pointed out that “the world seems to be moving against Intel's strengths,” with growing importance being given to design and architectural expertise.

The company has continued to focus on process, while experiencing delays. On the other hand, its competitors are focused on developing competitive products on processes that seem to be “worse” in theory, although are not necessarily so in practice.

The gross margin and EPS estimates for 2018 and 2019 have been lowered.