Intel Stock Headed To $50?

-6.02%
Downside
43.77
Market
41.13
Trefis
INTC: Intel logo
INTC
Intel

Intel stock (NASDAQ: INTC) is roughly unchanged since the beginning of this year, and at the current price of around $59 per share, we believe Intel stock has a significant downside.

Why is that? Our belief stems from the fact that Intel’s stock remains about 30% higher than the low seen in early 2019. Our dashboard What Factors Drove 29% Change In Intel Stock Between 2018 And Now? provides the key numbers behind our thinking, and we explain more below.

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This rise over the past year came despite a meager 2% growth seen in Intel’s revenues, with net income remaining unchanged. However, a 4% drop in outstanding share count (total share buybacks of over $13 billion) led to a 4% growth in earnings on a per share basis.

Finally, Intel’s P/E ratio rose from 10x at the end of 2018 to 12.5x at the end of 2019. While Intel’s P/E is still at the same level, given the volatility of the current situation, there is additional possible downside for Intel’s multiple when compared to levels seen in the past years – P/E of 11x at the end of 2016, and 10x as recently as in 2018.

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

The global spread of Coronavirus has meant there is much lower demand for computing devices across all markets, which means lower processor demand, and hence lower demand for Intel’s products.

Further, earlier this week Apple announced that they will be designing their own processors, and will gradually shift from Intel chips in their Macs over the next couple of years. Processor sales to Apple make up less than 5% of Intel’s sales, but it could still have a big impact given Intel has been consistently seeing single-digit revenue growth.

In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe Intel’s Q2 results in July will confirm the hit to its revenue. It is also likely to accompany a lower Q3 as-well-as 2020 guidance.

Regardless, if there isn’t clear evidence of containment of the virus at the time of the earnings announcement, we believe the stock will see its P/E decline from the current level of 12.5x to around 11x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to as low as $50.

While Intel stock doesn’t seem to have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That Could Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

Our dashboard forecasting U.S. Covid-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture.
The complete set of coronavirus impact and timing analyses is available here.

 

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