How to Get Intel up to $36, or Even $40: Analysts, Opportunity and Risk

Intel Corp. (NASDAQ: INTC) had an incredible Friday after the company raised its guidance. While the increase in business PC demand was at least somewhat tied to Microsoft ditching support for Windows XP, you have to consider that the market has not heard a single positive trend for the PC market in years. Intel hit $30, a feat that many believed was becoming impossible.

24/7 Wall St. has several considerations here. First is that there was some signs of PC stabilization as early as January. The real issue is that last September we outlined the path for Intel to hit $28 or even $30. Intel was at $23.74 at that time, and the consensus price target from analysts was only $23.80. That consensus is now closer to $30, but there were almost an endless number of analyst upgrades in rating and price targets on Friday.

We have hit several things here in our outlook and suppositions. There is the opportunity in growth markets, followed by the charts and technical, the short interest factor, analyst calls and how the market plays in here.

What we want to stress is that Intel hit $30 without making key progress in the smartphone and tablet markets. This has yet to be fought by Intel. It is certainly possible that Intel will just miss out on the smartphone and tablet war entirely. Still, if Intel does manage to score a victory there, and if the Internet of Things growth is maintained, then Intel could still be headed potentially much higher.

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Another boost is from Intel’s chart. Breaking above $30 was not just a 52-week high. This was a high not seen in a decade. The chart below will show how Intel hit this mark. We would remind readers that Intel’s rise in the past has come close to this before, so there could be a lot of near-term resistance as profit-taking could be an expected theme. Any time that every single investor who bought shares over the past 10 years is profitable, profit taking just seems more than likely.

Short sellers must have smartened up here that Intel was headed higher. This last week we saw that the May 30 settlement short interest date was the fifth consecutive decline in the short interest report. The following trends were seen in the Intel short interest this week (by settlement date and shares short):

• 5/30/2014 170,211,540
• 5/15/2014 177,732,864
• 4/30/2014 182,576,669
• 4/15/2014 202,974,802
• 3/31/2014 221,756,069
• 3/14/2014 222,525,143
• 2/28/2014 212,633,979
• 2/14/2014 208,989,806
• 1/31/2014 206,483,994

Again, Intel arrived here hitting the $30 mark without any significant inroads in smartphones and tablets. Now consider that Intel trades at about 14 times next year’s expected earnings, and it still pays a very high 3% dividend yield that is higher than all but two peers in tech in the S&P 500 Index.

Could Intel hit $36 or even $40? Let’s see the analyst target hikes and upgrades we tracked on Friday to get an idea of the new bias.

The analyst hikes were as follows:

• Barclays kept an Equal Weight rating but raised the target to $26.
• BMO Capital Markets maintained its Outperform rating and raised its target to $33 from $31.
• Canaccord Genuity maintained its Buy rating and raised the price target to $31 from $29.
• Credit Suisse maintained its Outperform rating and raised its target to $35 from $30.
• Deutsche Bank reiterated its Buy rating and raised the target to $35.
• Jefferies maintained its Buy rating and lifted its price target to $40 from $35.
• J.P. Morgan maintained its Overweight rating and raised the target to $31 from $30.
• Morgan Stanley raised its rating to Equal Weight from Underweight.
• RC Capital Markets maintained its Sector Perform rating and raised its target to $31 from $28.
• Roth Capital raised it to Buy from Neutral with a $35 price target.
• Sterne Agee maintained its Neutral rating, but raised its target price to $24 from $20.
• And Stifel maintained its Buy rating but raised the target to $31 from $30.

Credit Suisse’s commentary included:

This is the first positive pre-announcement since the first quarter of 2011 … while there will clearly be concern that upside was driven by unsustainable EOL WinXP buys, we would note that assuming 70% of second quarter 2014 revenue upside was driven by Corporate PCs would represent approximately 4 million incremental units or just 5% of the installed base of Corporate PCs still running WinXP — if EOL of WinXP was a major driver of demand, the upside would have likely been higher. More importantly, we continue to argue that Intel has earnings power of greater than $3.00 (note consensus estimates are $1.99 EPS in 2014 and $2.09 EPS in 2015) … More Signs of Moore’s Stress, we see increasing optionality value in Intel’s widening manufacturing lead and would argue if Intel is truly the last man standing on Moore’s Law, our greater than $3.00 earnings potential will approach $3.50 to $4.00 (per share).

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There is still room for Intel to rise further. Unfortunately, it will not be easy. Intel is going to have to make some headway into smartphones and tablets, and the company is going to have to dominate on the Internet of Things. The highest price target is now $40 from Jefferies, and Credit Suisse targeted $35 as its new benchmark.

Lastly, for Intel to make this move higher, the five-year-old bull market is going to have to at least create a stable to positive bias over the next year.