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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


September 18th 2009 Intel
Nasdaq Symbol: INTC
Industry: Semiconductor
Price as of Sept 18th: $19.56

The markets have been on fire of late as the economic data slowly improves along with many corporate outlooks. Within the tech sector, the skies seem to be clearing. Unlike the tech bubble, the tech companies entered this recession in much better shape with low inventory levels and strong balance sheets. As a result, as business has slowly improved, spending as come back to many technology firms dropping right to the bottom line. As a result, a number of tech firms have raised guidance including this weeks' featured stock, Intel. The world's largest chip firm has performed well. Back in August, Intel increased their revenue forecast for the second time in as many months. Intel now expects top line revenue of approximately $9 billion in the current quarter. On average, analysts were forecasting $8.5 billion in revenue for the quarter. Deutsche Bank raises their price target for Intel to $24 following the company's raised forecast reflecting
healthier end market demand for PCs. Intel and the tech sector seem to be on a roll heading into the year end their seasonally best quarter.
Back in July Intel reported strong earnings. Intel easily beat estimates by 10 cents making 18 cents or $1 billion. Sales were down 16% to $8.02 billion beating estimates of $7.28 billion consensus. Gross margins improved dramatically to 50.8% verse guidance consensus of 46.4%. Gross margins will remain strong in the range of 51-55% verse 49.76% consensus. Intel also raised guidance for third quarter to $8.1-8.9 billion verse $7.81 billion consensus. Intel suppliers heard good news with R&D spending rising to $10.6-10.8 billion, up from the prior outlook of $10.4 to $10.6 billion. Intel's second-quarter results reflected improving conditions in the PC market segment with the strongest first- to second-quarter growth since 1988 and a clear expectation for a seasonally stronger second half. Consumer products led the strong quarter on mobile processors shipments. Atom revenue grew of 65% in the quarter on a inventory snapback. Geographically, Intel saw
strength in Asia-Pacific, especically China. The US was strong and Europe is seeing a recovery lag. The second quarter strength was driven in part by a refill in the inventory supply chain that had been depleted over the prior 2 quarters. Margins were driven by higher PC volumes which lowered excess capacity. Intel concedes it does not see a refresh in enterprise spending this year, but hopes it will kick in next year following the traditional operating system cycle. As mentioned, the news got better in August when Intel raised sales guidance. Intel now forecasts $9 billion in the current quarter. Analysts, on average, have forecasted some $8.5 billion in revenue for the quarter.
With all the good news, the analysts are warming up to the stock. Last week, an analyst at Roth upgraded Intel to a buy from hold and raised their target to $25. The analyst expects a strong recovery in 2010 from a depressed base in the server market with enterprise spending beginning to recover in the second half of the year and gathering steam in 2010. Barclays Capital expects management to tighten third guidance to the high end of the range with likely upside to bookings. As mentioned, Intel's target was raised to $24 at Deutsche Bank following raised guidance. JMP also upgraded Intel to an outperform with a $24 target. Currently, Intel trades for a PE of 16 times next year's earnings, 3 times sales, and 2.8 times book value. Intel has never been much of a dividend play, but they have maintained the dividend and with the stock at depressed prices, the yield is now 2.8%. Not bad for a blue chip tech stock.