Intel Stock To Take An Almost 35% Hit Due To COVID Crisis?

Despite an almost 10% decline from its peak this year, at the current price of $62 per share, we believe Intel (NASDAQ: INTC) stock has a significant downside if there are no signs of abatement of the coronavirus crisis in May 2020. The key is Intel’s stock is still ~40% higher than it was at the beginning of 2018, a little over 2 years ago. We estimate that Intel’s stock price could decline to levels of around $41 (worst-case scenario) if its revenues fall by 20% vs. FY’19, its margins contract by 10% to about 26.3% in 2020 (as it continues paying its staff along with incurring other fixed expenses), and its valuation multiple falls to levels of around 12x from around 13x at the end of FY’19, and 21x at the end of FY’17. Below, we summarize this possible downside case for Intel, which is detailed in our interactive dashboard analysis Intel Downside: How Low Can Intel Stock Go?

So what’s the likely trigger and timing to this downside?

• The global spread of coronavirus has led to slowdown in industrial and economic activity, thus affecting consumer spending power. Lower consumption would lead to lower demand for laptops and computers, leading to lower demand for processing units. As most of the economic impact of the crisis started being felt in March, Intel’s Q1 was largely shielded. But we believe Intel’s Q2 results in July will confirm the hit to its revenue. The company is also likely to lower its full-year 2020 guidance with its Q2 announcement.
• Specifically, we believe the full-year revenue expectations formed by the market may be closer to $57 billion, about 20% lower than its 2019 revenue of $72 billion, and 18% lower than the 2018 revenue of $70.8 billion.
• The market isn’t going to stomach this well, and Intel’s P/E multiple is likely to shrink to about 12x from the 13x seen in 2019.
• The 20% reduction in revenues will not accompany a proportional reduction in expenses, as compensation expenses and other fixed costs like rent for bottling plants and upkeep of other machinery are likely to fall by a smaller percentage. This will likely result in the net income margin shrinking from 30% in 2019 to about 26.3% in 2020.
• This, in turn, would mean a double whammy of ~30% lower earnings and 10% lower P/E multiple, translating into Intel’s stock price dropping about 35%, close to $40.

Will such a drop be justified? Absolutely not. However, investors who are first out the door in a panic selling situation take a smaller hit to their portfolio.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

We do believe these trends are likely to reverse in later quarters of 2020, and as the Coronavirus crisis is tamed during late Q2, higher revenue and earnings expectations will replace the dire scenarios that are easily imagined during difficult times.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of companies. The complete set of coronavirus impact and timing analyses is available here.

You can see how COVID-19 could affect Intel’s computing peripherals’ peer Qualcomm, in our dashboard Qualcomm Inc. Downside: How Low Can Qualcomm Go?

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