Here’s Why Intel Stock Could Regain Its Early-2020 Highs

by Trefis Team
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Up around 20% from its low in March 2020, we believe Intel stock (NASDAQ: INTC) has further room for more than 20% upside to levels it traded at before the outbreak of the coronavirus.. The company’s stock trades at $55 currently and is, in fact, down almost 10% since the start of 2020. It traded at $67 in February 2020 – just before the outbreak of coronavirus – and is currently around 20% below that level, as well. Further, the rise in computing device sales has driven up demand for the company’s products, as is evident from Intel’s strong full-year 2020 results. For full-year 2020, Intel reported net sales of $77.9 billion, up a little over 10% from $72 billion last year. Despite a higher effective tax rate, a drop in operating expenses helped drive EPS up to $4.94 from $4.71 in 2019. We believe this can help boost Intel’s share price by more than 20% to its pre-Covid high of $67. Our conclusion is based on our comparative analysis of INTC stock performance during the current crisis with that during the 2008 recession in our interactive dashboard.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 72% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here is how INTC stock and the broader market fared during the 2007-08 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

INTC and S&P 500 Performance Over 2007-08 Financial Crisis

We see INTC stock declined from levels of around $22 in September 2008 (pre-crisis peak) to around $13 in March 2009 (as the markets bottomed out), implying INTC stock lost more than 40% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to just above $20 in early 2010, rising by around 60% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

INTC Fundamentals Over Recent Years

INTC revenues increased from $62.8 billion in 2017 to $77.9 billion in 2020, due to higher revenues across all revenue segments, driven by rising chipset sales. Along with higher revenue, earnings also jumped, with EPS rising from $2.04 to $4.98 during this period.

Does INTC Have Enough Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Intel’s total debt rose from $26.8 billion in 2017 to $36.4 billion in 2020, while its total cash also jumped from around $5.2 billion to $8.2 billion over the same period. Further, the company generated over $35 billion cash from operations in fiscal 2020. This steady cash position combined with strong cash from operations provides the company a reasonable cushion to deal with the current crisis.

Conclusion

Phases of Covid-19 Crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Despite the recent surge in the number of new Covid-19 cases in the U.S., we see the rise in computing and gaming device sales to continue on the back of the surge in online activity. We believe that Intel stock has potential upside in the near term, and even as the lockdowns are gradually lifted, a drop in computing device demand does not seem very likely. This could see Intel stock potentially rise over 20% from its current level.

While Intel stock seems undervalued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Apple vs Microsoft. Another example is Ansys vs Adobe.

 

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