Intel (INTC) shares have been hit by their second major downgrade of the week, as J.P. Morgan’s Christopher Danely this morning dropped his rating on the stock to Neutral from Overweight. Earlier this week, Bank of America cut its ratings on both Intel and Advanced Micro Devices (AMD).
In a research note Friday morning, Danely asserted that Intel “experienced a late-quarter slowdown in orders rates from the PC end market” which negated strength earlier in the fourth quarter. He says order weakness could be coming from Europe, where both Acer and the European electronics retailer DSG recently lowered estimates due to lower-than-expected European order rates. Danely notes that Europe accounted for 23% of Q3 PC demand.
Danely also says he is increasingly concerned about an inventory correction in PC components “due to weakening demand and high channel inventory.” He notes that unit growth in microprocessors has been in the 16%-20% range for almost two quarters, the highest since 1999-2000 and more than twice the average rate of 8%.
Danely cut his ‘07 EPS estimate by a penny to $1.23 from $1.24. For ‘08, he goes to $1.66 from $1.68. He notes that the stock is trading at 14.9x his new ‘08 estimate, below its normal valuation range of 16-22x. But that said, Danely contends there is little upside, “and increasing risk of downside to consensus estimates.
Intel Friday morning is down $1.22, or 5%, to $23.45, bringing the stock’s decline for 2008 to 12%. Meanwhile, AMD is down 22 cents, or 3.3%, to $6.55, giving it a loss for the very short year so far to 12.7%.