Intel Corporation (INTC): Goldman Believe Street EPS Is Too High

Intel Corporation (INTC): Goldman Believe Street EPS Is Too High
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Intel Corporation (NASDAQ:INTC)’s price target has been raised by Jefferies in a recent report, from $24 to $27, expecting a potential upside in the second half of the year. The report was based on following key points:

1. Microsoft Corporation (NASDAQ:MSFT) is getting more aggressive in pricing of Windows 8 and Office.
2. The new and improved offering from chip maker, Clover Trail and Bay Trail, are gaining popularity.
3. Intel’s Clover Trail was used in Samsung Galaxy Tab 3, which reduces the chip maker’s dependence on windows platform.

On the other hand, in a new report by Goldman Sachs:

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Whats Changed?

According to the report, PC datapoints have continued to deteriorate. For example: (1) ASUSTEK Computer Inc. (TPE:2357) lowered its 2Q13 outlook for notebook shipments to down 10% qoq from about flat prior. (2) Acer’s and Quanta’s monthly sales in both April and May were below expectations. Acer Incorporated (TPE:2353)’s sales were down 31% mom in April and up 2% mom in May. Quanta Services Inc (NYSE:PWR)’s sales declined 13% mom in April and were down 1% mom in May. (3) TI noted on its 2Q13 mid-quarter update that sales for the PC market remained weak.

Intel Corporation (INTC): Goldman Believe Street EPS Is Too High


Golman Sachs maintained their Sell rating. Analysts at the firm believe that weak PC datapoints imply risk to 2Q13 and 2H13 Street estimates for Intel Corporation (NASDAQ:INTC), which are in line with the company’s guidance and above seasonal. Recall that Intel Corporation (NASDAQ:INTC) guided 2Q13 revenue down 1% to up 7% qoq (up 2.5% qoq at the mid-point and above the ten-year median of flat) and implied that its 2H revenue will be up 11%-12% hoh (vs. historical median of up 8.7%). Despite the weak supply chain datapoints in 2Q and what they view as aggressive guidance from Intel Corporation (NASDAQ:INTC).

Intel Corporation (NASDAQ:INTC)’s stock is up 15% QTD (vs. the SOX up 9%). Goldman attribute this rally in part to investor excitement about factors that are far less important to Intel Corporation (NASDAQ:INTC)’s numbers such as the Samsung tablet win (likely to be only a small number of units) and potential foundry business with Apple Inc. (NASDAQ:AAPL). Analysts believe that if PC datapoints remain weak, then Intel Corporation (NASDAQ:INTC)’s plan to increase its wafer loadings in 2Q and 3Q will result in an inventory build and that Intel Corporation (NASDAQ:INTC) will therefore have to cut its wafer loadings and margins will decline. This is similar to 2012, when Intel Corporation (NASDAQ:INTC)’s gross margins declined by 530 bp qoq in 4Q.

Intel’s Price Target

Firm’s 12-month price target of $16 is based on 8.5X $1.90 normalized EPS.

Intel’s key risks:

Key risks relate to PC and server sales, gross margins, and market share.

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