Stock Analysis & Ideas

Is Intel Stock (NASDAQ:INTC) Undervalued Despite AMD’s Strength?

Story Highlights

Intel fell on its face following its latest round of quarterly results. As a recession moves in while industry peer AMD fires on all cylinders, value investors face tough sledding.

Things have gotten worse for Intel (NASDAQ:INTC) following the release of unimpressive Q4 results that preceded a solid AMD (NASDAQ:AMD) quarter. Indeed, AMD’s strength is giving INTC some trouble. Despite the magnitude of Intel stock’s decline, I still don’t think there’s much value to be had at these depths. Like many analysts covering Intel, I am neutral.

Intel stock’s been in free-fall for nearly two years, so expectations were modest going into the release. Still, Intel still missed the mark ($0.10 EPS vs. the $0.20 consensus) while failing to garner any confidence amid its transformation that it hopes can close the gap with industry rival AMD.

Intel continues to be up against it, with many analysts sticking by more of a “wait and see” approach, with more Sell recommendations than Buys. Indeed, it’s quite rare to have so many bearish analysts covering a large-cap blue chip.

That’s likely a testament to how considerable the pressures the firm is facing and how steep the uphill road to recovery may be for a firm that can’t catch a break.

Is INTC Stock a Buy, According to Analysts?

Turning to Wall Street, INTC stock comes in as a Moderate Buy. Out of 28 analyst ratings, there are three Buys, 17 Holds, and eight Sells.

The average Intel stock price target is $27.44, implying downside potential of 9.5%. Analyst price targets range from a low of $17 per share to a high of $45 per share.

Intel Stock: Cheap, but Cheap for a Reason

With many Wall Street analysts lowering their price targets on the name, value seekers looking for a cheap bargain will not only be going against market sentiment but also the analyst community, which maintains its “Hold” rating. It’s easy to see why most analysts are no fans of the name.

Competitive pressures are one sore spot. With the decaying macro environment that could weigh on chip demand, it’s tough to draw a line in the sand as Intel stock looks to stay ahead of its October 2022 lows of around $25 and change per share.

At writing, INTC stock trades at 15.5 times trailing earnings. For a firm with a recent history of fumbling the ball, this seemingly “fair” multiple may no longer be a good valuation gauge. Indeed, a combination of a falling share price and a climbing price-to-earnings (P/E) multiple may be indicative of a value trap.

When earnings feel the pressure, I like to also take a glance at the price-to-book (P/B) multiple against historical averages. After Intel’s latest slip, INTC stock trades at just 1.15 times P/B. That’s well below the five-year historical average P/B ratio of 2.7 times. It’s also well below the semiconductor industry average of 12.0 times.

Undoubtedly, Intel deserves to trade at a discount, given how things have been going. That said, we’ll eventually reach a point where expectations are so low that even modest signs of a turnaround could help the stock bottom out and march higher.

AMD Continues to Outshine Intel

Intel can’t control the macro environment. However, it hasn’t really shown it can entice consumers enough to claw back much share from rivals, most notably AMD, which recently clocked in solid results that sent shares flying more than 12%.

It’s no secret that AMD has been in the driver’s seat for quite some time now.

In the most recent quarter, AMD faced the same macro headwinds as its peers. Still, CEO Lisa Su’s firm managed to impress, with the Data Center and Embedded segments helping propel results above expectations.

Despite harsher economic conditions, Su stated that her firm is “well positioned to grow revenue and gain share in 2023.” That’s a big blow to the confidence of Intel investors looking to bet on a reversal.

It’s one thing for Intel to clock in weaker-than-expected numbers, but it’s another to have a rival beat estimates while calling for more market share gains in the new year. Maybe the finger can’t be pointed solely at the tougher macro climate.

After a rough round of results, Intel noted it’s cutting leadership pay by 15% (CEO Pat Gelsinger’s pay will get cut by 25%) to shore up cash for its pricy turnaround plan. Such cuts may not be enough to move the needle anytime soon as AMD continues to apply the pressure.

However, Intel’s turnaround plan is still very much in play. Such reallocation of capital may be able to give its turnaround a shot in the arm, perhaps on the other side of the looming recession.

The Takeaway

Intel appears to be an enticing “value” play after the broader market’s hot January run. Still, betting on the underdog isn’t always the best idea. For now, the trend is no friend of Intel.


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