Intel (INTC) Stock Downgraded to Market Perform at BMO as Analyst Struggles to See Scenario Where Shares Rally

October 26, 2021 7:31 AM EDT
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Price: $38.63 +0.05%

Rating Summary:
    22 Buy, 24 Hold, 12 Sell

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Today's Overall Ratings:
    Up: 12 | Down: 18 | New: 23
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BMO Capital Markets analyst Ambrish Srivastava downgraded shares of Intel (NASDAQ: INTC) to Market Perform from Outperform with a price target of $52.00 per share (down from $60.00).

Srivastava simply doesn’t see a near-term scenario that assumes shares outperformance. The analyst believes earnings are likely to stay depressed “for a while before we see a clearer path to recovery.”

The prior Outperform rating was based on the turnaround story and a new CEO. However, the analyst struggles with the outlook for LT top-line growth CAGR of 10%-12%.

“This is a company that has grown at a 5-year/10-year CAGR of 6%/4%. Intel has grown at a double-digit top-line in one out of the last 10 years, since 2011, after the 2-year double-digit growth post the financial crisis.

Intel guided to higher capital spending in the next 2-3 years, which is likely to keep FCF and margins depressed. Srivastava expects “a long time for earnings to recover.”

“First, we do not see Intel being able to grow its top-line at a CAGR of double-digits. Second, we see Intel barely being able to cover its dividend commitments given the depressed FCF over the next two years. Intel has a lot of capacity to take on additional debt, so we are not suggesting that Intel’s dividend could be at risk, but pointing out that Intel may have to access the capital markets to fund both its aggressive capital expansion plans and to continue to pay its dividend,” the analyst added.

Shares of Intel closed at $49.41 yesterday and are nearly unchanged YTD.

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