Can Intel Be A $65 Stock By Next Year?

by Trefis Team
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Intel’s (NASDAQ:INTC) stock reached $57 levels in June 2018, before a slight pullback to $48 levels currently. While we estimate the fair stock price to be around $58, it is worthwhile to explore what would it take for the company’s stock to go even higher and hit $65. Assuming that the market multiple doesn’t change meaningfully over the course of the next year, Intel will likely need to push its 2019 EBITDA per share beyond $8.00, much of which will have to come from margin improvement. We have created an interactive dashboard ~ How Intel Can Be A $65 Stock ~ that shows our base case estimates, and a scenario where Intel’s stock price can touch $65 levels. You can adjust drivers to see the impact on Intel’s EBITDA and price estimate.

Intel Will Have To Reach $8.00 In EBITDA Per Share Next Year To Be a $65 Stock

We forecast Intel’s price to EBITDA multiple of a little under 8x, and its EBITDA to be $7.50 per share in 2019 to arrive at our price estimate of $58. Assuming the multiple to be around 8x, Intel will need more than $8.00 in EBITDA per share, in order to be worth $65 per share. This is feasible if the company can successfully compete against AMD’s Ryzen and EPYC processors, and improve its margins.

EBITDA Per Share Expansion Opportunity 1: Ramp Up In Xeon Scalable Processor Sales And Thwarting EPYC Threat

Intel will need to thwart AMD’s advancement in the CPU market with new Ryzen processors. AMD has reportedly gained share in the CPU market over the past few quarters. We forecast the Client Computing Group to see mid-high single digit revenue growth in the near term, primarily led by higher notebook sales, given an expected modest growth in the overall PC TAM. Intel also saw low double digit growth in notebook sales in Q3 2018. 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. Note that Intel accounted for roughly 99% of the server market in 2017, and it may lose some of the market share this year to AMD, but it will still dominate with over 90% share. The segment is benefiting from its cloud business, as well as high performance products, primarily Xeon Scalable. Growth in cloud computing will result in higher demand for faster and high performance servers, and this will bode well for Intel. These factors can potentially add an incremental $800 million each in its Client Computing and Data Center group revenues to our current forecast. However, any significant revenue growth is unlikely for the Client Computing group in the coming years, given the overall computing devices market is expected to remain relatively stable.

EBITDA Per Share Expansion Opportunity 2: Margin Expansion Driven By Price Increases

Intel’s Client Computing group margins will need to increase by 200 bps, and any significant expansion beyond this is unlikely, given the growth in AMD’s Ryzen sales. Data Center Group margins have opportunity to rebound considering historical performance, with EBITDA margins as high as 62% till a few years back. Intel will need to add nearly 300 bps to margins here. This is possible, as average selling price support from higher priced chips could continue to aid Intel’s margin. The demand for high-performance PCs has increased, which has helped Intel and AMD see growth in average processor pricing. While there is a delay in the launch of Intel’s new 10nm chips, any update on this, especially a H1 2019 launch,  could impact AMD’s sales and aid Intel’s margin growth.

 

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