Intel Corp is still a pass, says Roth Capital

The path forward looks a little clearer for Intel Corp (Intel Corporation Stock Quote, Charts, News, Analysts, Financials NASDAQ:INTC) but a few more pieces have to fall into place for Roth Capital Partners analyst Suji Desilva to pull the trigger on the stock. In a Wednesday report to clients, Desilva maintained a “Neutral” rating on INTC and 12-month target of $30.00, which at press time represented a projected return of 15 per cent.

Intel shares sank on Tuesday after the company announced a reduction to its annual dividend, dropping it to $0.50 per share from the prior $1.50. The company said the move would help preserve cash and allow it to push forward with its strategic investments, with management promising $3 billion in total cost savings in 2023 and $8-$10 billion in savings by the end of 2025 through a number of measures including cutting its headcount. (All figures in US dollars.)

“Prudent allocation of our owners’ capital is important to enable our IDM 2.0 strategy and sustain our momentum as we rebuild our execution engine,” said Pat Gelsinger, CEO of Intel, in a press release.

“We remain on track to deliver five nodes in four years and continue to expand the IFS (Intel Foundry Services) customer base. We are well into the ramp of 13th Gen Intel Core and 4th Gen Intel Xeon Scalable processors, and we look forward to the launch of Meteor Lake and Emerald Rapids in 2023 and Granite Rapids and Sierra Forest in 2024,” he said.

Desilva said he’s encouraged by Intel’s cash preservation moves along with management’s reaffirmation of a first quarter 2023 revenue drop of between 18 and 25 per cent sequentially, with the thought that Intel’s supply chain adjustments are now returning to more normal patterns.

“With the broader market PC TAM for CY23 expected to decline mid-single-digit per cent year-over-year, reflecting an ongoing challenge, we believe supply chain correction will dominate near-term results into a 2H23/early-CY24 demand recovery,” Desilva said.

The analyst said his $30 target represents a 2024 price-to-earnings multiple of 18x, which he said is a premium to the overall semiconductor large cap median of about 14x and reflects “a near-term earning leverage opportunity in recovery for the company.”

“We maintain our Neutral and will look for execution and traction of near-term product roadmap and visibility into peer comparable manufacturing profitability prior to getting more aggressive on the name,” Desilva wrote.