Several analysts upgraded the stock this morning.
J.P. Morgan’s Christopher Danely went to an Overweight rating from Neutral. “Margin bottom=upgrade,” he wrote this morning:
We believe Intel’s share gains, stable pricing, and lower costs should drive margin expansion during [the second half], and we would note pricing for Intel was roughly flat [sequentially] despite AMD (AMD) carpet-bottoming prices.
As I noted in my post yesterday, Intel said gross margin for the quarter would be about 51%, above previous guidance of 50%.
Doug Freedman, an analyst with American Technology Research, raised his rating to Buy from Neutral, and increased his price target to $26 from $22:
We believe the sector, which we have labeled uninvestable for some time, is close to putting in a fundamental bottom, and Intel shares are at attractive levels for investors. AMD has laid out a nice roadmap for transitioning to integrated chipsets and improving power, however it is Intel that is in the driver’s seat to capitalize on opportunities thanks to its robust product roadmap and increased focus on attacking the lower-end of the market and utilizing 45 nm process technology across its entire product portfolio.
Freedman offered a list of six reasons to buy Intel right now:
Price war nearing an end “even faster than we expected.” Die size reductions and product roadmap should boost margins. NOR flash business could be divested soon. AMD “still has no strategy to attack Intel at the high-end of the PC market.” Intel “beginning to move down the ladder with competitive products such as Classmate PC and ultra-mobile platform. Buying Intel at or under $20 has yielded positive returns in the past.
I have here a pile of other research reports from today on Intel; the bullish ones all boil down to this: higher gross margins are good, buy the stock. I’m not trying to minimize them; it just so happens that they are all saying the same thing.
There are still quite a few bears, though; here’s what the more cautious crowd is thinking:
Mark Lipacis, Prudential: We think AMD’s weak cash position will motivate it to fill up its fabs, and with Intel not just maintaining capex outlook but indicating its intent to keep fabs full, we think the MPU price war gets worse. Reiterate Underweight rating. Joe Osha, Merrill Lynch: Bulls on the stock may point to the inevitable bullish outlook for the second half from Intel’s management, but long experience has taught us that Intel isn’t very good at forecasting its own business. The stock isn’t attractively valued on 2007 earnings anyway. What matters is whether Intel can reduce AMD to its former 15% market share status. If Intel can manage that then there’s a real cast for much better margins next year…Much depends on whether AMD can gets its own updated Barcelona architecture out in time to hit the [second half] selling window. If AMD misses that window, Intel’s plans for next year may work out. Stay tuned. Eric Gomberg, Thomas Weisel Partners: [It] remains an ultra-competitive environment, and in order to re-establish dominance, Intel must continue to execute on its upcoming designs and 45nm ramp…With older excess AMD inventory remaining in the channel, pricing remains a potential risk and could possibly weigh on profitability in the near term. Tim Luke, Lehman: Pricing pressures, increased competition in servers - following AMD’s launch of Barcelona - and inventory remain key risks. At 16x our CY 08 EPS estimate of $1.26 we believe the shares are fairly valued.
Intel today is up 29 cents at $21.27.