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Ruchi Gupta

Down 39% YTD, Is It Too Early to Buy the Dip in Intel Stock?

Intel Corp (INTC), valued at $129 billion by market cap, is one of the world’s leading chipmakers and designers. They focus on producing microprocessors for computers and data centers. Intel's portfolio includes chipsets, microprocessors, graphics, network and communication, embedded processors and controllers, laptops, gaming devices, and more. Incorporated back in 1968, the company is headquartered in Santa Clara, with operations across the Americas, Europe, the Asia-Pacific region, and Israel. 

INTC stock has plunged 39.5% this year so far, making it the worst-performing stock YTD on both the Dow Jones Industrial Average ($DOWI) and the S&P 500 Index ($SPX), as of this writing.

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Intel's Disappointing Q1 Results 

Intel released its 1Q results on April 25, where it posted revenue of $12.72 billion - falling short of analysts' estimated $12.76 billion. EPS arrived at $0.18, beating the market's estimate of $0.13 per share. Free cash flow deteriorated to negative $6.18 billion, while on the bright side, gross margin improved to 41% from 34.2% same quarter last year. 

Intel also released guidance for the upcoming quarter, with revenue expected at $13.00 billion and earnings at $0.10 per share. Both metrics came in below analysts' expected $13.59 billion and $0.26 per share. 

Rough Transition to Foundry Business

This was the first quarter that Intel transitioned into a newer operating model, while introducing Intel Products and Intel Foundry. It was an important step to provide better transparency and accountability to the two groups and also to the outsider owners. Intel expects Foundry's operating margins to hit a trough this year, with Q1 the low point for free cash flow - and post-2024, management expects to see “rapid profitability improvement.” 

INTC, a beneficiary of the CHIPS Act, just signed another contract with the Department of Defense on Intel 18A, taking their total tally to 6 and making them a leader in the aerospace and defense segment. The Department of Defense gave Intel Foundry phase 3 of the Ramp C program. Management is hopeful of luring more customers from the aerospace and defense sector with the help of this contract. 

Analysts Cut their Targets for INTC

While management sounded upbeat on the conference call, analysts were much more pragmatic in response. 

T.D. Cowen analyst Matthew Ramsey reiterated his “Hold” rating, but lowered the stock's price target from $42 to $35. Although Intel claims earnings will “bottom” in the coming quarter, Ramsey seems skeptical, noting that catalysts are very “few and far between,” and that the company needs to do much more to catch up to Nvidia (NVDA) and AMD (AMD)

Elsewhere, Evercore ISI’s Mark Lipacis maintained his “Hold” rating and lowered his target from $40 to $36, observing that Intel “has a lot of wood to chop.” Overall, INTC has a “Hold” rating from 73.5% of the analysts in coverage.

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The mean price target now stands at $41.56, indicating an upside potential of 36.8% from current levels. 

On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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