On Friday, BofA Securities adjusted its outlook on Intel Corporation (NASDAQ:INTC), reducing the stock's price target to $40 from the previous $44 while maintaining a Neutral rating. BofA Securities cited a combination of factors influencing the decision, including Intel's established position in the enterprise market, its U.S.-based manufacturing capabilities, and current weak investor sentiment that could offer potential for a turnaround.
However, the firm noted that Intel's revenue growth is tempered by limited exposure to artificial intelligence (AI), underutilization of manufacturing resources, and high operational and capital expenditures, including payments to foundries.
Intel reported first-quarter sales of $12.7 billion, which were in line with expectations, but its second-quarter sales forecast with a midpoint of $13 billion fell short of the anticipated $13.6 billion. This shortfall is attributed to subdued macro demand in the PC and enterprise sectors.
Additionally, the gross margin (GM) for the second quarter was reported at 43.5%, which was 160 basis points below the consensus of 45.3%. This decrease was unexpected and was due to a mix of more production being outsourced to the more expensive external foundry TSMC and one-off reserves in the first quarter.
Despite the lower than expected second-quarter outlook, Intel has maintained its full-year 2024 gross margin forecast, expecting an increase of 200 basis points year-over-year to approximately 45.6%.
The company anticipates growth in the second half of the year to be nearly double digits on a half-over-half basis, driven by cyclical improvements, contributions from Altera and Mobileye, advancements in AI PCs, and positive enterprise seasonality.
In light of these factors, BofA Securities has revised its forecasted earnings per share (EPS) for Intel, lowering the projected figures for calendar years 2024, 2025, and 2026 by 3%, 9%, and 7%, respectively, to $1.15, $1.74, and $2.22.
The new price objective of $40 is based on an unchanged price-to-earnings (PE) ratio of 23 times the estimated 2025 earnings, representing a discount when compared to the broader semiconductor index and Intel's compute peers.
InvestingPro Insights
Intel Corporation (NASDAQ:INTC) is navigating a challenging market environment, as reflected in the recent revision of the stock's price target by BofA Securities. For investors looking at the current state of Intel, InvestingPro provides additional context that could influence investment decisions. According to real-time data, Intel's market capitalization stands at $131.28 billion, with a P/E ratio of 36.75, suggesting a higher valuation compared to historical averages. Moreover, the company's revenue for the last twelve months as of Q1 2024 was $55.24 billion, indicating a slight decline of 2.09% in revenue growth.
InvestingPro Tips highlight that Intel is anticipated to see net income growth this year, which could signal a positive shift in the company's financial trajectory. Additionally, the stock is currently in oversold territory based on the Relative Strength Index (RSI), which might attract investors looking for potential buying opportunities. Intel's status as a prominent player in the Semiconductors & Semiconductor Equipment industry and its consistent dividend payments for 33 consecutive years also add to its investment profile. For those seeking deeper analysis and more tips, InvestingPro offers a total of 9 tips on Intel, which can be explored further at: https://www.investing.com/pro/INTC. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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