View on Intel: Maturity Versus Growth (INTC)

After the first day of the Intel Corp. (NASDAQ: INTC) analyst day, we have been looking through many opinion pieces and reports.  There is one standout report that addresses growth and value, without being overly optimistic nor overly negative.

American Technology Research’s Doug Freedman has an interesting call.  While AmTech notes the growth initiatives and strong execution opportunities, Freedman ponders how long it will be before Intel has matured.  He notes, "It may take 5-7 years, but management appears unwilling to concede that the tech market is mature. We also question if any new opportunity could ever rival the core IA CPU business and help grow revenue to $80B in 3-5 years. The core PC is mature and highly cyclical, and the new consumer-oriented initiatives could also mature very quickly."

Freedman also notes that analyst sentiment is very negative in terms of growth success.  If the report sounds negative by the mere question of maturity versus growth, it isn’t.  Freedman noted the accelerating share repurchases as positive, a quick addressing of not allowing NAND woes to drag the entire company, Silverthorn for ultra-mobile computing, and strong volume and average selling prices.

While this report questions growth versus maturity, that is merely for the long-haul.  Freedman has reiterated AmTech’s BUY rating with a $27.00 price target.  That is almost $1.00 higher than the average target from analysts on Wall Street, and with shares right at $20.00 it represents a potential gain of roughly 35% from current prices.  Recently AmTech did remove this from its FOCUS LIST, but maintained that Buy rating before today’s report.

We would note that we also recently noted that if you take the NAND weakness at face value, it actually implied that Intel’s core business is holding up and the negativity may be too overdone.  Shares would have to run 40% before they took out a recent 52-week high at $27.99.  We have also questioned whether or not it would have to warn, but that appears to be already baked in on the recent news.  At current prices, Intel trades at roughly 15-times fiscal 2008 earnings estimates and about 12.9-times 2009 earnings estimates.

Jon C. Ogg
March 6, 2008