Intel's Market Prospects: Neutral Stance and $50 Price Target by BofA Analyst

In a recent analysis of Intel Corp (NASDAQ:INTC), Vivek Arya, an analyst at Bank of America (BofA), maintained a Neutral stance on the tech giant, indicating a price target of $50. This outlook comes amid Intel's mixed performance and future potential.

Market Performance and Expectations

Arya predicts a modestly positive fourth-quarter outcome for Intel, with sales anticipated at $15.1 billion, a gross margin of 46.5%, and earnings per share (EPS) around $0.45. Looking ahead to the first quarter, the analyst expects a shortfall with sales declining to $13.5 billion. This forecast comes as a result of various challenges such as lowered expectations for Mobileye, seasonal downturns in the PC industry, and weaker demand in sectors like industrial, automotive, networking, and enterprise.

Intel's Financial Outlook

According to Arya, Intel's cost restructuring might lead to favorable gross margin outcomes, potentially increasing EPS. However, he has reduced his sales prediction for the year 2024 to $58.5 billion, which is an increase of 8.5% year-on-year but still below the wider market consensus of $61.3 billion. He has modestly adjusted the estimated EPS for the same year to $1.48, below the consensus of $1.82.

Intel has previously reached a 60% gross margin target during a period of market growth in PCs and data centers, along with dominating CPU value share. To return to these historical trends, Intel will have to align several factors in its favor, considering that the company now operates with higher capital expenditure intensity and a greater depreciation burden.

Gross Margin and Earnings Per Share

Analyst Arya estimates that Intel finished the fourth fiscal quarter of 2023 with a gross margin between 46% and 47%. If the company effectively follows through with its planned technological advancements, it could see a margin increment of 60%-70% over the next couple of years. Arya's models show gross margins for the years 2024 to 2026 at approximately 2% lower than the consensus. Achieving a gross margin of over 50% will be vital for Intel to reach an EPS that meets optimistic investor expectations.

Presently, Intel's 25 times next twelve months (NTM) P/E ratio is nearly double its historical average of 13 times. This suggests that investors believe there's a reasonable chance for Intel to catch up with industry leader Taiwan Semiconductor Manufacturing Company Ltd (TSMC) in the field of manufacturing.

Competitive Landscape and Stock Movement

The analyst acknowledges the potential for Intel's technological progress and customer acquisitions in the foundry space. Still, he remains cautious about the company's ability to significantly increase market share given TSMC's scale, yield, and reliability. He further notes that competing against well-established foundries may prove difficult as many fabless companies rely heavily on TSMC (and Samsung).

Additionally, Arya mentions the possibility of Arm Holdings making further inroads into markets that could impact Intel. Despite the analysis, Intel shares experienced a slight uptick, increasing by 0.38% to $49.08.

Intel, Neutral, Analysis