Intel Corp. (NASDAQ: INTC) may have a game changer on its hands with the acquisition of Altera Corp. (NASDAQ: ALTR) now finalized. The $54 per share offer is for $16.7 billion and represents a little more than 10% of Intel’s $158 billion market cap. Many firms on Wall Street have seen their analysts reiterate their Buy ratings on Intel. Still, the deal is not being universally endorsed.

BMO Capital Markets downgraded Intel to Market Perform from Outperform based on a lack of deal vision. BMO further said that it was cutting the price target all the way to $33 from $40 based on the deal. BMO simply struggles with how it will add value for Intel shareholders long term. Based on trends of Altera before the deal, the firm just does not believe Intel’s post-merger growth assumptions.

24/7 Wall St. tracked several other analyst calls Tuesday morning (some of which are outlined in more detail below):

• Jefferies reiterated its Buy rating with a $48 price target.
• Credit Suisse reiterated its Outperform rating and $40 price target.
• Canaccord Genuity maintained its Buy rating and $39 price target.
• S&P Capital IQ maintained its Buy rating.
• Bank of America Merrill Lynch reiterated its Buy rating and $38 price objective.

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On Intel, Canaccord Genuity said that it was maintaining its Buy rating and keeping its $39 price target. The note introduction from analyst Matthew Ramsay said:

While the price tag appears steep, the acquisition does not change our overall bullish long-term fundamental thesis as we begin meetings with Intel management and PC supply chain participants at Computex in Taiwan today that should shed light on whether Windows 10 and new Skylake product launches can drive the more robust 2H/15 PC implied by Intel’s full-year guidance.

We maintain our bullish view on Intel fundamentals highlighted by sustained foundry advantages and strong secular momentum supporting 15%+ DCG and ~20% IoTG growth potential. While Mobile losses remain heavy, we believe Intel’s modem/SoC technology is gradually closing the gap in a quickly thinning herd of competitors with the business nearing transitions to SoFIA that should eliminate the need for costly subsidies beginning 2H/15 with underappreciated cost synergy potential in the combined Mobile/PC business.

Credit Suisse was also positive. Analyst John Pitzer maintained his Buy rating $40 price target. His note said:

The transaction is valued at $16.7 bb (EV of $15.5 bb) or ~28 times 2016 EV/EBITDA a ~108% premium to its peer group. INTC expects the transaction to be financed with cash/debt, to close in 6-9 months, and to be accretive in the 1st year after close – 60% of the synergies to come from Rev and 40% from OpEx. Our analysis suggests $0.06-$0.10 accretion.

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Credit Suisse further said that the firm has mixed views on the acquisition, with specifics on the more critical side as follows:

(1) valuation appears rich – we estimate a buyback would be $0.25-0.40 accretive, INTC appears to be paying > 20 years of accumulated Altera operating cash flow,

(2) Intel’s expected future Revenue CAGR of ~7% for Altera appears aggressive vs. Altera’s CAGR from 2010-2015 of negative 2.7%, and dilutive to Intel DCG/IoT CAGR of ~14%/~18% respectively,

(3) manufacturing synergies are apparent but only relevant to N+ technology which is expected to only be ~10% by 2018.

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What offsets the concerns at Credit Suisse are the following issues:

(1) even if only defensive (note Company says offensive) protecting DCG footprint should be a strategic imperative,

(2) SAM expansion of $11 billion in IoT is under-appreciated by investors,

(3) discrete acceleration application is at least a $1 billion total addressable market but integrated FPGA/CPU likely opens up new applications, price points, ROI especially since DCG is NOT performance saturated,

(4) Altera is a long duration asset in a stable duopoly with better than industry margins and cash flow,

(5) its world view of Semiconductor Revenue to Global GDP inflecting higher would argue a “land-grab” strategy is likely to have significant future returns.

S&P Capital IQ maintained its Buy rating:

We think Altera presents greater opportunities within the attractive Data Center arena and believe Intel will enhance Altera’s products through their existing manufacturing relationship. While Intel will need to leverage its balance sheet, we think its substantial cash position and cash flow generation provides ample financial flexibility. We like Altera’s diversified end-market exposure. Intel sees the deal, expected to close in 6 to 9 months, being accretive to EPS/FCF in the first year.

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