Intel Corp. shares dropped Friday as nearly a third of the analysts covering the stock cut their price targets following a strong earnings report that did little to distract from the advances of smaller rival Advanced Micro Devices Inc.
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Many analysts agreed that a decline of only 9% in Intel’s data-center group, or DCG, revenue to $6.5 billion was actually good news, because analysts expected a steeper drop to $5.84 billion, though the chip maker was still losing market share to AMD AMD,
Read: Intel appears to be feeling the competitive heat from AMD
In a note titled, “Sometimes a clean bedspread hides dirty sheets,” Bernstein analyst Stacy Rasgon said that while Intel’s full-year guidance was raised a bit — to earnings of $4.80 a share on revenue of $73.5 billion from $4.60 a share on revenue of $72.5 billion — it still suggested a guide down for the second half of the year.
“And pulling back the 2H covers suggests the bed is messier than it appears at first glance, with low Q4 [gross margins] and Q4 earnings that seem (as far as we can tell) boosted by hundreds of millions of dollars’ worth of non-op gains (we think as much as $700M, or~8 cents), suggesting normalized EPS significantly below expectations,” wrote Rasgon, who has an underperform rating and a $43 target price on Intel shares.
“At this point, Intel’s outlook for 2022 & beyond remains something of a black box, one we will get no clarity on until the Nov. analyst day,” Rasgon wrote.
Intel’s investor meeting is currently scheduled for Nov. 18. The company is also holding an “Intel Accelerated” event on Monday, where it plans to provide updates on its chip processes and packaging.
Cowen analyst Matthew Ramsay, who has an outperform rating and a $80 price target, conceded it is “still very early in the Intel battleship turnaround,” and that shares would be “range bound” until we get closer to November.
“Still, strong PC numbers and better than expected DCG growth were positives, but capacity constraints are limiting further near-term upside, as are AMD share gains,” Ramsay said.
“CEO Pat Gelsinger believes both market share and pricing will stabilize in 2H21,” Ramsay said. “We agree on the latter, but continue to see AMD gaining share initially at hyperscale cloud customers and recently in the enterprise server market as well.”
Read: Why chip stocks are falling despite semiconductor shortage, strong early earnings
Sticking with the still-lots-to-do metaphors, Evercore ISI analyst C.J. Muse, who has an in-line rating and cut his price target to $60 from $75, said there’s “still lots of wood to chop” at Intel.
“Moving to DCG, the good news was E&>/Cloud drove upside for the June Q with growth expected sequentially into both 3Q and 4Q leading to a return to double digit Y/Y growth,” Muse wrote. “The bad news was that DCG [operating margins] fell to 30% in the Q, highlighting meaningful competition from AMD.”
“Put it all together and there remain many unanswered questions, particularly as it relates to the company’s manufacturing road map, execution of silicon designs vs. both AMD and ARM, and ability to build a profitable and highly scalable foundry business,” Muse noted.
Citi Research analyst Christopher Danley, who has a hold rating and cut his price target to $57 from $60, expects margin pressure to continue as demand for chips from the PC markets slows.
“We believe negative catalysts such as push-outs from the PC end market and lower margins due to share loss to AMD will result in reductions to consensus estimates and offset Intel’s attractive valuation,” Danley said. “We believe Intel’s gross margins could dip to the 40s due to share loss to AMD and a correction in the PC end market.”
Full earnings coverage: Intel says chip shortage could drag into 2023 as outlook barely clears Street view
Over the past 12 months, Intel stock has fallen more than 12%. Over the same period, the Dow Jones Industrial Average DJIA,
Of the 41 analysts who cover Intel, 14 have buy ratings, 17 have hold ratings, and 10 have sell ratings. Of those, 13 trimmed their price targets, resulting in an average target price of $62.71, down from a previous $64.92, according to FactSet data.
