Intel (INTC) Goes Into Finger Amputation Biz as Falling Knife Collects Dues

November 29, 2012 11:24 AM EST
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Price: $36.79 --0%

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    42 Buy, 20 Hold, 5 Sell

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In keeping with their negative view of the stock, analysts at Goldman Sachs maintained a Sell rating on Intel (Nasdaq: INTC) and lowered their price target to $16.00 (from $20.00). The problem, in the view of Goldman, is margins.

"We expect excess supply as Intel and AMD (NYSE: AMD) have record inventory," warned analyst James Covello. "Our hardware team expects the PC unit CAGR to be zero from 2011-2014E, and we believe the full extent of Intel's new capacity has yet to come online,"

Corvello noted that Intel stock is highly correlated to gross margin, which could take a hit as supply builds.

"Intel's 3Q12 capex was its second highest ever, suggesting that significant supply will come online for several more quarters and exacerbate current excess capacity," added Covello.

For the record, Covello's Sell rating on Intel is based on cyclical concerns. In other words, it is not a call related to the so-called 'death of the PC'.

Goldman lowered Intel's 2013/2014 EPS estimates to $1.60/$1.90 from $1.70/$2.05.

For an analyst ratings summary and ratings history on Intel (Nasdaq: INTC) click here. For more ratings news on Intel click here.

Shares of Intel closed at $20.09 yesterday.

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Covello: highly correlated to gross margin
Stretcho on 2012-11-30 12:14:05
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There is a fatal error in James Covello's model. Covello says that Intel stock price is "highly correlated" to gross margin. The problem is that gross margin cannot reflect the value of each Intel share. Intel reduced the number of shares outstanding from 6.5b down to 5b. Gross margin could be the same for each of those cases but the total margin dollars PER SHARE would be 20% higher with fewer shares. Covello should be using MARGIN DOLLARS PER SHARE as metric that is more highly correlated than his simple minded gross margin.

"Corvello noted that Intel stock is highly correlated to gross margin, which could take a hit as supply builds."

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