Intel Corporation Upgraded to ‘Buy’: MKM

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Intel shares edged upward by as much as 2% during regular trading hours today after analysts at MKM Partners bumped up their price target for the company from $40 to $45 per share. They also upgraded Intel from Neutral to Buy and increased their earnings estimates for the company.

Intel looks good in 2015

In a report dated Jan. 5, 2015, analyst Ian Ing said he probably left his Neutral rating on Intel for too long, even though he maintained a positive bias toward the company. He said he likes how Intel is set up as the year begins.

It’s clear now that the PC market has stabilized, and Intel has shown improvements in its data center business. He thinks Intel’s data center business is just at the beginning of growth because enterprises are about to drop big bucks on cloud service infrastructure and big data analytics. He points out that big data and Hadoop platforms require multiple servers, which of course means more sales for Intel.

In addition, he said supplier roadmaps appear to be “well-timed,” meaning customers have plenty of reasons to upgrade. A number of supplier refreshes are coming down the pipeline this year.

Intel to progress in tablets and foundry

The analyst also expects Intel to keep scaling its wireless and foundry business, which is an important factor because he was previously Neutral-rated on the chipmaker because of skepticism on this issue. He likes the company’s “persistent and practical approach to eventually succeed in new markets,” particularly in tablets and, geographically, in China.

Ing believes Intel still isn’t satisfied with the current scale of its Mobile & Communications and Foundry businesses, and he thinks this year will bring some major milestones as Intel pushes further into those markets.

Intel deserves a premium multiple

The analyst thinks it’s reasonable to assign Intel premium earnings multiples because of continued stabilization in the PC market as well as “increasingly favorable mega-trend exposure.” Currently Intel trades at about 15.5 times consensus forward earnings estimates. He thinks a multiple that’s close to that of the S&P is “appropriate.” Currently the average is 16.4 times.

He adds that the law of large numbers does usually result in compressed earnings multiples for large cap companies. However, he also said Microsoft and Qualcomm have continued trading higher than the average multiples in the S&P while also taking part in “mega-trends” that have significantly grown their earnings.

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