On Friday, BofA Securities revised its price target for Intel Corporation (NASDAQ: NASDAQ:INTC) shares, decreasing it to $44 from the previous $50, while sustaining a Neutral rating on the stock.
The adjustment follows Intel's recent business re-segmentation, which led to a change in the valuation approach for the company's entire Integrated Device Manufacturer (IDM) business, encompassing both Products and Foundry services.
The analyst from BofA Securities pointed out that the Intel Foundry remains heavily reliant on the company's internal design team. This dependency has prompted a shift to a combined valuation method for the IDM business rather than evaluating each segment separately. The new price objective is set at 23 times the projected CY25E P/E, a decrease from the previously estimated 26 times.
Despite the price target reduction, the analyst highlighted several positive factors for Intel. These include an anticipated cyclical upturn in PC sales, which could be further boosted by incremental AI PC benefits stemming from Apple (NASDAQ:AAPL)'s M4 chip and a refresh of Windows 10. This is particularly significant given that PC sales account for 50-60% of Intel's revenue. The improving scale and profitability of Intel's Foundry business were also noted as positive aspects.
However, the report also mentioned challenges facing Intel, such as the shift in customer spending towards accelerated computing solutions like XPUs and networking over traditional CPUs. Additionally, the emergence of other leading-edge foundries in the United States, such as TSMC and Samsung (KS:005930), which have each received $6-7 billion in CHIPS Act awards, poses a competitive concern for Intel.
In determining the new price target, BofA Securities applied Intel's historical discount of approximately 32% to the SOX index to its IDM business, resulting in an estimated 20 times CY25E P/E based on $1.61 pf-EPS. The valuation also takes into account the standalone values of Altera and Mobileye, which are estimated at $26 billion and $22 billion, respectively. The firm reiterated its Neutral stance on Intel shares with the updated price objective of $44.
InvestingPro Insights
As investors digest the latest price target revision for Intel Corporation by BofA Securities, real-time data from InvestingPro provides additional context. Intel's market capitalization stands at a robust $160.19 billion, reflecting its significant presence in the semiconductor industry. Despite a challenging revenue growth rate of -14% over the last twelve months as of Q1 2023, the company has managed to maintain a gross profit margin of 40.04%, showcasing its ability to retain profitability in a competitive market.
InvestingPro Tips suggest that Intel is expected to see net income growth this year, which could provide a positive outlook for investors considering the stock's recent performance. Additionally, the company has a long history of dividend reliability, having maintained dividend payments for 33 consecutive years, which could appeal to income-focused investors. However, it's noteworthy that Intel is trading at a high earnings multiple, with a P/E ratio of 93.08, indicating that the stock may be valued more for its future growth prospects rather than current earnings.
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