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Intel Analysts Harp On Muted Second Half Outlook Following Stellar Quarter

Intel Analysts Harp On Muted Second Half Outlook Following Stellar Quarter

Intel Corporation (NASDAQ: INTC) shares are sharply higher Friday after the company reported strong quarterly results.

The Analysts

Needham analyst Quinn Bolton maintained a Hold rating on Intel.

Wells Fargo Securities analyst Aaron Rakers maintained an Equal-Weight rating and increased the price target from $58 to $70.

UBS analyst Timothy Arcuri maintained a Buy rating and increased the price target from $60 to $75.

KeyBanc Capital Markets analyst Weston Twigg remained at Sector Weight.

Wedbush analyst Matt Bryson maintained an Underperform rating and increased the price target from $46 to $52.50.

Outlook Weak

Intel's 2020 outlook implied a front-half weighting for the year, Bolton said. First-quarter revenues are expected to climb 18% year-over-year, helped by strong Cloud Service Provider and persisting PC CPU supply constraints.

Bolton sees inventory digestion period in Data Center Group, or DCG and a decline in Client Computing Group due to maturing PC refresh cycle and increased competition dragging growth in the second half of 2020. Citing the weak second-half outlook, Needham lowered its third- and fourth-quarter EPS estimates, reflecting gross margin pressure and slower revenue growth.

Related Link: 3 Chip ETFs To Buy On Intel's Stellar Forecast

Cloud, Competition, Capex, 10nm Update

The most important takeaways included DCG growth, thanks to strong Cloud, the update provided on 10 nm, competition that is hurting ASPs and capex guidance, Rakers said. The analyst noted Cloud SP, which now account for about 60% of DCG revenues, is growing at a 48% year-over-year rate.

"While Intel reported positive results, we would expect investors to focus on Intel's expectation that cloud customers could move to a capacity digestion phase into 2H2020," Rakers wrote in the note. He remains cautious on Intel's efforts to increase PC CPU capacity to eliminate supply constraints a PC growth slows.

Intel Continues To Be Top Idea For 2020

The strong fourth-quarter results and the calendar year 2020 first-quarter guidance reflect an intense re-acceleration from cloud customers in the data center segment, which supports the 2020 EPS guidance of $5 per share, well above the consensus, Arcuri said. There was no wavering on the 10nm/7nm timelines.

Arcuri likes Intel's portfolio approach, as it brings new ASIC and GPU chips to the market: "At the end of the day, INTC is keyed to FCF which we think has some solid leverage."

The stock continues to be a top idea for 2020.

Limited Multiple Expansion Likely Midterm

Intel's gross margins could drop for an extended period due to increasing competition in its core market and emerging opportunities for growth in lower ASP markets, along with high ramp costs at 10nm/7nm, Twigg said.

Given the expectations of an increase in headwinds, KeyBanc models modest revenue growth and a moderate gross margin decline in 2021. This suggests roughly flat EPS in 2021, likely limiting multiple expansion midterm.

Intel's Momentum To Be Challenged

Intel's tempered expectations for second quarter through the fourth quarter reflected conservative cloud spending forecasts and increased competition, Bryson said.

Intel is likely to see its momentum challenged by market share gains by Advanced Micro Devices, Inc. (NASDAQ: AMD) and slowing end markets through the end of 2020.

The Price Action

Intel shares were rallying 7.6% to $68.14 at time of publication.

Latest Ratings for INTC

Jan 2021Truist SecuritiesMaintainsHold
Jan 2021Roth CapitalMaintainsNeutral
Jan 2021Morgan StanleyMaintainsOverweight

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