Intel Corporation (NASDAQ:INTC) shares surged 64 cents, or 1.9% to $34.90 yesterday, probably after the report from Merrill Lynch’s Vivek Arya, who maintained an Outperform rating on the shares and raised price target to $43 from $36. Also, shares are under-owned, according to Arya, with only 27% large cap funds owning the stock.
Report from Merrill Lynch suggests that investors will acknowledge the PC foundation of the company, and then will shift their focus on the company’s supremacy in data center, networking, Internet of Things, security and its leading-edge manufacturing capabilities. Investment thesis in the report is based on four points; first investors under-appreciate PC stabilization, second mobile division can be restructured by 2016, driving $3+ in earnings per share, 20% above Street, third Intel can continue to grow/dominate data center, last shares are under-bought.
According to the analyst, Intel could revive its computing business by 2016, and give greater competition to Qualcomm in the LTE baseband chip business where the latter is ruling the roost right now. Recently, Intel bought a 20% stake in Chinese wireless chip maker Spreadtrum for $1.5 billion, and Arya believe that this deal along with a partnership with China’s Rockchip will back the company’s mobile efforts.
Merrill Lynch analyst feels that the shares are under-bought with around 60% underweight relative to the benchmark similar to the re-rating in pharma stocks, when patent cliff challenges were addressed.
Analysts positive on mobile chip efforts
Wells Fargo analysts were also positive on Intel’s mobile chip efforts. Wells Fargo, recently, assigned Outperform rating to the stock and gave a wide price range of $35 to $42 per share. In their weekly chip report last week, analysts detailed about Intel Corp’s agreement with Chinese government entity Tsinghua Unigroup to work on Spreadtrum on x86 based SoC for mobile phones. Both the companies entered into a slew of agreements. Spreadtrum and Intel will together design and sell Intel x86 SoCs for mobile phones. These products are expected to be available in the second half of 2015.
Analysts believe that Intel has an “excellent strategy for driving x86 processors into the ARM-dominated tablet and smartphone processor markets.”
In pre-market trading today, Intel shares were up 0.54% to $35.09, and year to date shares are up over 35%.