The last time I weighed in on Intel (NASDAQ:INTC), I said, “It’s best to avoid INTC stock for now, and look to by on a pullback.” That was on Nov. 27, 2019, as it traded at $58.22.
Shortly after, Intel did, in fact, pull back slightly to $55.80 before running up to $66.68.
While Intel is losing market share to companies like Advanced Micro Devices (NASDAQ:AMD), it’s still pushing to higher highs. All thanks to rising demand for CPUs from data centers, artificial intelligence, machine learning, 5G, and the Internet of Things.
Plus, Intel still trades with a low forward P/E of just 13.3, as compared with AMD’s 37.26. It’s also well below the average P/E of 17.2 of some of the top semiconductor stocks in the VanEck Vectors Semiconductor ETF (NASDAQ:SMH).
However, that may expand with better earnings growth. We must also consider that analysts haven’t priced in much growth in recent years. But that’s quickly changing as well. At the moment, with big demand, coupled improving fundamentals, I’d like to see Intel closer to $75 a share.
Intel Insiders are Just as Bullish
Insiders have been buying into strength. In recent weeks, new director Alyssa Henry paid $1 million for 15,400 shares of INTC at an average price of $64.88 a share. All after the company posted strong fourth quarter earnings.
In fact, in its latest quarter, Intel had adjusted earnings-per-share of $1.52 on sales of $20.2 billion.
That was far better than expectations for EPS of $1.24 on sales of $19.2 billion. Better, year over year, earnings have grown 19% as sales popped 8%, as noted by Investor’s Business Daily contributor Patrick Seitz. For the first quarter of 2020, Intel expects to pull in adjusted EPS of $1.30 a share on sales of $19 billion. That’s also above analyst expectations for $1.05 on sales of $17.2 billion. For full-year 2020, it also expects to post revenue of $73.5 billion, topping estimates for $72.1 billion.
Then it turned around and increased its dividend payout by 5% to $1.32 a share, annually. That works out to a quarterly dividend of 32 cents. Better, it used $3.5 billion to buyback 63 million shares of Intel stock.
“In 2019, we gained share in an expanded addressable market that demands more performance to process, move and store data,” said Bob Swan, Intel CEO. “One year into our long-term financial plan, we have outperformed our revenue and EPS expectations. Looking ahead, we are investing to win the technology inflections of the future, play a bigger role in the success of our customers and increase shareholder returns.”
Intel’s Outlook May be Too Conservative
Top analysts don’t believe Intel’s guidance was aggressive, as it should be.
According to Deutsche Bank analyst Ross Seymore reiterated his “buy” rating on the stock with a target price of $72. He also cites Intel’s “inexpensive valuation,” adding that Intel is offering, “a positive risk/ reward within an otherwise expensive semiconductor sector,” he says, adding that demand may improve from replenished inventory during the second half of the year.
Bottom Line on Intel Stock
While it’s losing market share to companies like AMD, you wouldn’t know it looking at Intel’s stock. With an unsustainably low valuation, the 800-pound gorilla should ramp up on higher demand, strong earnings, insider buying, and buybacks.
By the close of 2020, I’d like to see Intel closer to $75 a share.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.