Stock Analysis & Ideas

Intel Stock (NASDAQ:INTC): Consider a Dip Buy amid Analyst Downgrades

Story Highlights

It’s a sign of a chip-market bottom that analysts have, by and large, completely abandoned Intel. Besides, a well-known cloud king still believes in Intel and is teaming up with the microprocessor maker to build a super-secure chip for data centers.

Intel (NASDAQ: INTC) is a roundly disliked company right now. Is this a good thing or a bad thing? As analysts pile on Intel with bearish forecasts, contrarian investors should consider the potential for a powerful share-price rebound if and when Wall Street learns to love Intel again. With this perspective in mind, I am bullish on Intel stock.

Let’s not forget that Intel is a giant in the field of manufacturing microprocessors. Everybody and his uncle liked Intel during the prosperous times when the share price was much higher. That wasn’t the time to be a buyer, though.

If anything, value hunters should lean into the hate. After all, “hate” rhymes with “rebate,” and investors can get a terrific discount on cheap Intel shares now, along with a hard-to-resist 5.8% annual dividend yield. So, get ready to delve into a chipmaking champion that’s unappreciated and, therefore, ripe for price appreciation.

Analysts are Cutting INTC Price Targets

Judging by analysts’ 2022 assessments of Intel, you might be led to believe that the company is heading toward bankruptcy. The sense of pessimism has reached an extreme level, with one analyst firm after another lowering their price targets on Intel stock.

You may have heard that Goldman Sachs (NYSE: GS) analysts recently set a profoundly pessimistic price target of $23 on Intel. Susquehanna (OTC: SQCF) also has a $23 price target on Intel shares. In addition, Needham just slapped a $32 target on INTC stock.

While not quite as pessimistic, other analyst firms have also published their price-objective chop jobs in 2022. In September, for instance, Deutsche Bank (NYSE: DB) reduced its price target on Intel shares from $38 to $35. In a similar vein, Barclays (NYSE: BCS) analysts lowered their price objective INTC stock from $40 to $35 and added insult to injury with an Underweight rating on the shares.

Meanwhile, Wedbush cut its price target on Intel stock from $44 to $35. Moreover, UBS (NYSE: UBS) analysts reduced their price objective on the shares from $51 to $41.

Interestingly, there’s also a price target cut that’s actually still quite optimistic. Northland Securities analysts reduced their target on Intel stock from $55 to $52, but this still implies significant upside price movement. Plus, the Northland analysts maintained an Outperform rating on the shares.

Intel Could Become a Leaner, More Focused Company Soon

It sure sounds like Intel stock has reached the point of peak pessimism, which is exactly what value investors should want to see. Besides, Intel is apparently preparing to divest part of its business, which is potentially good news as Intel can then focus on its more profitable business segments.

Intel has a self-driving technology segment known as Mobileye, which Intel plans to take public in an initial public offering (IPO). Mobileye develops advanced driver assistance systems, which could be a fast-growing niche market in the coming years if the self-driving automotive technology industry continues to expand.

It’s been said that the Mobileye IPO could be the biggest one of the year, at least in the U.S. Mobileye is a company with an international reach, as China is its second-largest market. Investors should also know that Mobileye currently isn’t profitable, so it may be in Intel’s best interest from a financial standpoint to separate itself from Mobileye.

It’s hard to pinpoint exactly how much capital Intel will generate from spinning off Mobileye. However, it’s safe to say that the figure will be in the billions of dollars. Moreover, making Mobileye an independent business will make Intel a leaner, more focused chipmaking company. All in all, the Mobileye spinoff, assuming it takes place as anticipated, is likely to be among the most notable tech events of the next 12 months.

Intel Teams Up with Google Cloud

Even while many analysts have thrown in the towel on Intel, Alphabet’s (NASDAQ: GOOG)(NASDAQ: GOOGL) Google hasn’t given up on the chipmaker. In fact, Google Cloud is reportedly teaming up with Intel to co-design a chip that could help bolster the efficiency and security of data centers.

The chip’s code name is Mount Evans, but its official name is the E2000. Google’s vice president of engineering, Amin Vahdat, explained that the E2000 takes over the work of packaging data for networking from the expensive CPUs that do the main computing. Furthermore, the E2000 offers better security between different customers that may be sharing CPUs in the cloud, Vahdat clarified.

The point is that the E2000 can help make data centers more efficient and productive. If Vahdat is a representative of Google, then it certainly sounds like the two businesses could continue to work and innovate together. Concerning the Intel-Google Cloud partnership, Vahdat said, “We do consider ourselves to be the open cloud, and to the extent that others take advantage of the capabilities here, we’re thrilled.”

What is the Average Price Target for INTC Stock?

Turning to Wall Street, INTC is a Hold based on four Buys, 15 Holds, and eight Sell ratings. The average Intel price target is $36.62, implying 46.3% upside potential.

Conclusion: Should You Consider Intel Stock?

Between the generous dividend and Intel’s low trailing 12-month P/E ratio of 5.4x, this should be awfully hard for value seekers to resist. At the same time, many experts on Wall Street dislike Intel now – and this ought to be a green light for contrarian traders.

What investors can look forward to is a spinoff of Intel’s Mobileye unit as well as a hopefully successful partnership with Google Cloud. All in all, Intel remains a chipmaking powerhouse that isn’t well-liked, which should only make the stock all the more appealing.

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