Morgan Stanley Sees Intel (INTC) Selloff as Overdone
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Morgan Stanley analyst Joseph Moore reiterated an Overweight rating and $72.00 price target on Intel (NASDAQ: INTC) on the belief that Intel's stock overreacted to CEO comments on the earnings call. After receiving many phone calls from investors regarding concerns, he offers 4 solutions that will help the company transition its business. While there is no quick fix, he believes substantial upside is possible.
1) Gelsinger's focus appears to be how to build the best possible microprocessors. If so, use TSMC where TSMC is best, use Intel fabs where Intel fabs are best. He believes the best case would be if Intel can build barriers with its own fab, but that's not the only element that matters.
2) Regardless of the manufacturing split, it seems highly unlikely that Intel will be disadvantaged vs. its microprocessor competition by process technology beyond the next 24 months.
3) AMD has significant product line momentum that will increase materially with the Milan launch (officially in March). However, this shouldn't be extrapolated in perpetuity, he expects technology roadmaps to remain very competitive between the two companies beyond this year.
4) While the management articulation of a hybrid IDM+ outsourced model is an accurate portrayal of their current intent, all of the options are still on the table. He believes that if after a rigorous analysis, the company finds that they aren't able to make better microprocessors internally than at foundries for a multi-year time frame, they wouldn't continue to pursue internal manufacturing out of a sense of history or patriotism.
The analyst stated "our expectation is that there is enough progress to move from a 45% discounted p/e vs. the group to 30%, or from 11x to about 14.5x vs. the group average (on CY22) in the low 20s. While that view has been met mostly with skepticism, therein lies the opportunity. A 14.5x multiple is $72, offering substantial upside".
Shares of Intel closed at $55.58 yesterday.
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