Expecting Double-Digit Growth For Intel Makes It A Buy At Loop Capital

The transformation of Intel Corporation INTC beyond being just a PC company will drive earnings and revenue growth in 2017 and 2018, according to note from Loop Capital.

Catalysts And Expectations

Analyst Betsy Van Hees has started coverage of Intel with a Buy rating and $40 price target, as she believes the chip giant would benefit from a return to double-digit growth in DCG, higher revenue from NAND and better cost controls.

Van Hees sees DCG revenue to increase 7 percent sequentially in the fourth quarter and 9 percent year-over-year in 2016. The analyst also projects DCG year-over-year growth of 14 percent and 12 percent in 2017 and 2018, respectively.

“We see continued strong YoY growth in DCG in 2017 and 2018 driven by continued demand from cloud service provider, telecommunication, networking, and the storage end markets,” Van Hees wrote in a note.

The analyst expects growth in IOTG and NSG to shield Intel in declining PC market. Van Hees models IOTG revenue to increase 16 percent in 2017 and 20 percent in 2018, driven by demand for video analytics, industrial, factory automation, and the retail segment.

Q4 Guide, 2017 Estimates

Notably, Van Hees believes Intel’s guide for fourth-quarter revenue to a range of $15.2 billion to $16.2 billion below seasonal and the risk of an inventory correction in the first quarter appears to be low.

Further, the analyst estimates Intel’s revenue in 2017 to increase 5 percent to $61.7 billion and pro forma EPS to increase to $2.82, and 4 percent to $64.1 billion and pro forma EPS to $3.04 in 2018.

“We believe with INTC going through its transition that it should trade at a discount to the peer group blended average multiple of 15x,” Van Hees added.

At last check, shares of Intel had risen 1.38 percent on the day to $36.47.