We are lowering our revenue estimates and reiterate a HOLD rating following yesterday’s FY2014 outlook for flat revenues at Intel’s analyst day. We remain on the sidelines expecting weak holiday season sell through, driven in part by consumer distraction from competing devices like the new iPad Air, where demand appears to be strong.
Intel Corporation (INTC)’s investment highlights
- Intel Corporation (NASDAQ:INTC) held its analyst day in Santa Clara, California yesterday with formal presentations followed by an extensive question-and-answer session. Key areas of focus included an overview of each of the company’s key business segments including PC Client, Data Center, Software and Mobility. Management also highlighted its Foundry services and the move to the 10nm node by 2015.
- Intel Corporation (NASDAQ:INTC) established FY2014 guidance with revenue expectation of flat Y/Y growth compared to consensus expectation of 2% Y/Y growth, gross margins of 60% (mid-point of long term 55% to 65% range) and operating expenses flat Y/Y. The flat Y/Y revenue guidance for FY2014 includes expectation of low- to mid-teen growth in Data Center offset by mid-single-digit decline in PC Client sales, coupled with flat Other Architecture group sales and low-double digit growth in Software and Services. Management expects capex spending to remain flat at $11 billion.
- Management expects to maintain a 4% dividend yield with a target allocation of 40% of free cash flow returned to shareholders as dividends and share buybacks.
Price target and estimates for Intel
- Revenue: Q4/13E unchanged at $13.618 billion; 2013E unchanged at $52.492 billion; 2014E from $53.348 billion to $52.551 billion.
- EPS: Q4/13E unchanged at $0.51; 2013E unchanged at $1.88; 2014E from $1.79 to $1.87.
- We are raising our price target from $20 to $22. Intel Corporation (NASDAQ:INTC)’s price target of $22 is 11x our C2014 EPS estimate of $1.87 plus net cash of $1.17/share.