Analysts and investors are bullish on Intel Corporation (NASDAQ:INTC) following the company’s investor day. Following the meeting, analysts expressed concerns about the company’s move to increase investment in memory chip capabilities, as some believe that partner Micron Technology will not be up to speed with the jointly developed 3dx point technology. Other uncertainties include the cracks in Intel’s server market, which analysts believe competitor Cavium will fill. Despite these concerns, the pros outweigh the cons for most analysts. The company presented a plan for revenue growth projected into next year, after steady declines from 2014 due to a weak PC market and a lukewarm enterprise server portion of the business, Data Center Group.
Despite recent weaknesses, analysts have many reasons to be bullish. During investor day, management projected revenue growth for 2016 in the “mid-single digits,” slightly above analyst consensus of 4.2% growth. Data Center Group has been steadily growing, as well as the company’s set of smaller businesses, which add up to a large portion of the company’s revenue. Analysts believe that “growth in these businesses can more than offset fairly significant declines in the company’s Client Computing Group,” the company’s PC and tablet/smartphone business.
Intel plans to spend $10 billion, up from the projected $7.3 billion in its latest earnings release. CFO Stacey Smith reassured investors about this increase, stating, “Our financials show that Intel’s transformation is underway and we’re forecasting growth for 2016.” She presented the napkin math theory, which showed that company can still achieve revenue growth even with a 10% decline in the PC market. Intel believes that the Client Computing Group, the company’s largest generator of revenue, and DCG will continue to show growth in the upcoming year, even if it’s slight. On Friday, the company hired former Qualcomm founder Dr. Venkata Renduchintala to oversee its Client and Internet of Things Businesses, which includes the Client Computing Group. The company also increased its dividend to $1.04 from $0.96, as a way to show its appreciation and value for its shareholders. Smith continued, “The 2016 dividend increase reflects confidence in the strategy and Intel’s ongoing commitment to create value and return cash to shareholders.”
Following these developments, analyst David Wong of Wells Fargo weighed in on the stock, reiterating an Outperform rating and a $40 to $50 valuation range. He states, “We think Intel has a strong lineup of products that will help it gain microprocessor market share. Intel also has a history of strong roadmap execution, enabling it to maintain a leadership position in microprocessor technology.” He continues, “We think that Intel will be able to maintain and possibly even grow its manufacturing technology lead in the future, helping the company win share and drive growth in new segments such as smartphone chips, Internet-of-things (IoT) and foundry.”
Separately, analyst John Pitzer from Credit Suisse also expressed bullish sentiments on the technology company. He mentions that 40% of the company’s revenue and 65% of its operating income comes from its non-PC businesses, up from 34% revenues and 15% operating income from four years ago. The analyst continues, “While operating leverage was perhaps less than we hoped in CY16 – with much of the Mobile savings being re-invested in DCG, IoTG and tech development – we continue to see INTC’s willingness to de-emphasize ‘financial-engineering’ to focus on investment and innovation as a strength, not a weakness.”
Out of the 28 analysts who have rated Intel in the last 3 months, 17 gave a Buy rating, 2 gave a Sell rating, and 9 remain on the sidelines. The average 12-month price target for the stock is $36.54, marking a 5% upside from current levels.
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