Further Downside For Intel Stock?

Intel stock (NASDAQ: INTC) is down 12% since the beginning of this year, but at the current price of around $52 per share, we believe that Intel stock could see more downside.

Why is that? Our belief stems from the fact that Intel stock is still up 20% from the low seen at the end of 2017, over 2 years ago, and with Apple switching to their own processors and the delay in Intel’s 7nm chip line, we believe Intel’s stock could drift lower. Our dashboard What Factors Drove 20% Change In Intel Stock Between 2017 And Now? provides the key numbers behind our thinking, and we explain more below.

Intel stock’s rise since late 2017 came due to a 15% rise in revenue, which further translated into a 119% rise in net income. This, combined with a 6% drop in the outstanding share count, led to a 134% rise in earnings per share (EPS). Net income rose due to a gradual drop in SG&A expense, and a significantly lower effective tax rate (53% in 2017 to 9.7% in 2018 and 12.5% in 2019).

In addition, Intel’s P/E ratio dropped from 21x in 2017 to 12x in 2019, and has further dropped to 11x currently. However, given the volatility of the current situation, there is further possible downside risk for Intel’s multiple.

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

The global spread of Coronavirus has meant there have likely been supply disruptions in China and elsewhere across the globe. Further, in late June Apple announced that they will be designing their own chips over the next year, which will gradually replace the Intel chips in their Macs. Although processor sales to Apple make up less than 5% of Intel’s sales, it could still have a significant impact given Intel has been consistently seeing single-digit revenue growth.

Additionally, in July, Intel announced that their 7nm chips have been delayed until at least 2022. For comparison, chip rival AMD has already started rolling out its 7nm Ryzen 4000 chips which have been outperforming Intel’s current chip line, and will likely eat into Intel’s market share at least until the 7nm chips roll out in 2022. We believe Intel’s Q3 results in October will confirm the hit to its revenue. It is also likely to accompany a lower full-year 2020 guidance.

Regardless, if there isn’t clear evidence of containment of the virus anytime soon, we believe the stock will see its P/E multiple decline from the current level of 11x to around 10x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to as low as $45.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams