Stock Analysis & Ideas

Intel Stock: This Falling Knife is Too Hard to Catch

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Intel stock is sinking rapidly following its latest second-quarter earnings miss. With mounting headwinds and competitive pressure dragging Intel into the ditch, its five-year catch-up plan could be in jeopardy.

Shares of ailing chipmaker Intel (INTC) haven’t participated in the broader market’s relief bounce, with shares extending to new lows not seen in nearly five years. Though Intel has a plan to close the gap with its fierce rivals in the semiconductor space, the recent quarterly earnings miss is not doing any good for investor confidence, which continues to deteriorate. With the stock down about 47% from its 2021 high, Intel stock has a lot of negative momentum behind it.

Though the valuation is starting to get compelling, Intel stock strikes me as a troubled name that’s too hard to back at a time like this.

The way I see it, there are more comforting places to be right now, with the S&P 500 (SPX) still down ~15% on the year. I am bearish on INTC stock, as its strengthening rivals could weigh heavily on sales and margins moving forward.

Intel Hit a Wall in Its Second Quarter 

Intel can’t seem to catch a break. The company reported a horrid Q2 earnings miss, with EPS coming in at $0.29, far lower than the analyst consensus of $0.70. Revenue came in at a soft $15.3 billion, down 17% quarter-over-quarter.

Understandably, there was quite a bit of macro pressures and supply-chain woes dragging down the results. However, the finger can’t be blamed entirely on the weakening state of the economy. Intel felt the full force of its sluggishness in the PC market.

With Apple’s (AAPL) Mac business gaining traction, thanks in part to hardware innovations (think the M1 and M2 chips), it’s not too far-fetched to believe that the Mac is in a spot to finally pressure the PC where it hurts.

Indeed, the Mac is back, and without Intel inside, it’s Intel that seems to be left out in the cold. In the PC market, Intel is also at risk of losing market share to top rival Advanced Micro Devices (AMD), which provides consumers with a great bang for their buck.

Over the coming months, AMD could pass Intel in market cap for good. While AMD is in a bit of a slump of its own, it’s hard to imagine PC users switching back to Intel processors anytime soon – not unless Intel can pivot and move past its operational hiccups more effectively.

Intel Stock Looks Cheap but Not Cheap Enough

There’s no sugar-coating it. Intel’s second quarter was brutal. Still, a valuation exists where even the most distressed firm can offer investors a great risk/reward. At writing, Intel stock trades at 7.7x trailing earnings, 2x sales, 1.5x book value, and 4.7x operating cash flow. On each metric, Intel is considerably cheaper than the semiconductor industry average – and for a good reason.

There are issues that need to be ironed out if Intel is to get sales and margins heading higher again. Severe headwinds are facing Intel as it looks to turn the tide back in its favor. However, it needs to focus on innovation to get things back on the right track.

If Intel can improve upon per-watt performance, it can take market share back. Even if a coming recession weighs heavily on the broader PC market, a solving of the firm’s idiosyncratic issues may be enough to put a bottom in the stock.

I’m not so sure Intel can reverse the trend, as its rivals look to have the upper hand. For now, the 4.1% dividend yield — the highest it’s been in recent memory — is relatively safe. However, there isn’t much room for error as the firm looks to CEO Patrick Gelsinger to steady the ship amid choppy waters.

Wall Street’s Take on INTC Stock

Turning to Wall Street, INTC stock comes in as a Hold. Out of 30 analyst ratings, there are five Buys, 16 Holds, and nine Sell recommendations.

The average Intel price target is $40.04, implying an upside of 11.2%. Analyst price targets range from a low of $30.00 per share to a high of $72.00 per share.

Conclusion: It Will be Tough for Intel to Catch Up

It’s been such a fall from glory for Intel. As the torch is passed to AMD, it may prove tougher for Intel to play catch up. The latest quarter was one of the worst of this earnings season. With a reduced full-year sales guidance ($65-68 billion from $76 billion), the bar has been lowered.

In any case, the stakes are as high as ever.


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