Morgan Stanley upgrades Intel

Published on: 28 Feb, 2019

Morgan Stanley has upgraded Intel stocks on Friday to overweight from equal weight hiking its price target from USD 55 to USD 64, which is a 24% upside from Thursday’s close of USD 51.41. Intel shares were up 9.55% this year through Thursday’s close.

Morgan Stanley analyst Joseph Moore suggests, “Investors should buy Intel shares as they could get a boost from CEO Bob Swan's leadership.”

In a note to clients, the banks stated that "We think that Intel can rerate higher around a more financially oriented CEO."

"While some investors wanted someone with more of a technology background, we think that one of Intel's biggest challenges in recent years has been its tendency to become enamored with technology over economics."

Bob Swan was Intel’s interim Chief Executive Officer for seven months after Brian Krzanich was asked to resign last year after he reportedly violated a policy at Intel that said managers cannot have relationships with people who report to them either directly or indirectly.  Prior to that, Swan was the Chief Financial Officer at Ebay Inc for nine years and joined Intel in 2016. Swan was officially appointed Chief Executive Officer late January.

Moore wrote, “We have been neutral to negative on Intel for seven years, and we are cautious on PCs, but the relative value on enterprise value to sales is too low versus a group suddenly (and in our view, prematurely) in favor, with opportunities to improve capital allocation.”

Moore also wrote, “With a better portfolio optimization process, framing those technology issues around business risk/reward, a mindset of optimizing free cash flow more than earnings, and a higher standard of M&A accretion, we see the multiple expanding from 12x to 14x in our base case."

However, Intel is still lagging behind its competitors Nvidia and Advanced Micro Devices. Nvidia’s stock is up more than 16% and AMD surged nearly 30% in 2019. Moore is also still “cautious” about the semiconductor industry in general saying, “While we are cautious on semiconductors, and Intel is not immune, these idiosyncratic opportunities set them apart."

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Terrence Koo

Email: terrence@financialinsiders.com

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