Sterne Agee CRT Reiterates Buy as Intel (INTC) Makes Moves in Face of Weak PC Market
Sterne Agee CRT reiterated a Buy rating and $38.00 price target as Intel (NASDAQ: INTC) begins to shift focus to higher potential end markets. The company appears to be doubling down in DCG and other higher growth markets with restructuring actions to create sustainable earnings and FCF power. This comes in the face of prolonged weakness in the PC market. INTC is expecting demand to be down to high-single-digits in 2016.
Analyst Douglas Freedman commented, "We are pleased to see INTC shifting focus to higher potential end markets as they reduce 11% of workforce. Investment will be redirected from PC to other businesses with more solid growth opportunities while improving the cost structure in PC client group. While PC headwinds continue to weigh in near term results, we see future FCF above street est, driven by double-digit DCG growth, $1.4B cost savings from restructuring, and opportunities in memory and IoT. With gross margins likely bottoming in 2Q16, we forecast higher margins in 2H16. We remain buyers of INTC with PT of $38 as operating metrics are above SP500 averages while the applied multiple remains below (12x vs. 15x on a 2017 P/E basis). Our PT is 13.8x 2017 non-GAAP EPS of $2.74."
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Shares of Intel closed at $31.60 yesterday.