How Intel Can Be A $50 Stock

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While Intel‘s (NASDAQ:INTC) stock reached all-time highs of around $47 following its strong third quarter results, before a slight pullback, it is worthwhile to explore what would it take for the company’s stock to go even higher and hit $50. Assuming that the market multiple doesn’t change meaningfully over the course of next year, Intel will likely need to push its 2018 EPS beyond $3.10, much of which will have to come from margin improvement. Take a look at our interactive breakdown of Intel’s business forecast for more details.

Our price estimate for Intel stands at $41, which is slightly below the current market price.

Intel Will Likely To Reach $3.10 In EPS Next Year To Be $50 Stock

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Intel’s P/E ratio stands at a little above 16 currently. Assuming that the ratio will be around 16 by the end of next year and won’t adjust downward meaningfully, Intel will need more than $3.10 in earnings per share as opposed to our current forecast of $2.70, in order to be worth $50 per share. This is feasible if the company can successfully compete against Ryzen CPUs and improve its margins significantly.

EPS Expansion Opportunity #1: Xeon Scalable Processor Success, Thwarting Ryzen Threat

Intel will need to thwart AMD’s advancement in the PC CPU market with new Ryzen processors. AMD has reportedly gained share in the desktop CPU market this year. However, if Intel can hold off the new threats and snatch 5% share away from AMD with its own newer CPU models, it could add as much as $2 billion in additional revenue. Also, while we don’t see a lot of room for growth beyond what we currently forecast for Intel’s server business, the company can push for higher server processor pricing while it still enjoys market dominance. This can potentially add an incremental $500 million in its Data Center group revenue.

EPS Expansion Opportunity #2: Margin Expansion Driven By Price Increases

Intel’s Client Computing group margins will need to increase by around 200 bps, but we don’t see significant expansion beyond that in the near term. In addition, its Data Center group margins will need to rebound. There is a strong opportunity here, considering that Intel has historically enjoyed margins of well over 50%. If the figure rebounds to that level, which is nearly 500 bps above what we forecast, there could be a significant impact on the company’s EPS. Intel can achieve this through a combination of cost rationalization and price increases. The demand for high-performance PCs has increased, which has helped Intel and AMD see growth in average processor pricing.

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