Intel: The Downgrade Is Already Reflected In The Current Valuation

| About: Intel Corporation (INTC)

Yesterday, Craig Ellis of Caris & Co cut his estimates for Intel (NASDAQ:INTC) for this quarter and the full year, from Buy to Above Average, and lowered its target from $29 to $26.

The downgrade is due to the slowdown in the PC business, the Europe crisis and macroeconomic weakness. The revenue for the quarter is cut to $13.73 billion in revenue and 54 cents per share in profit. For the full year, the estimate of the revenue is down to $56.91 billion and the estimate of net income is down to $2.48 per share. Similar to Caris, Evercore Partners currently has equal-weight rating on Intel on Monday, with the target price of $24. FBR Capital has a $26 price target on Intel. And Drexel Hamilton has a hold rating on the stock.

PC sales might pick up slightly when Microsoft's (NASDAQ:MSFT) Windows 8 is released on October 26. However, several days ago, following Bloomberg news, Intel's CEO, Paul Otellini told Intel's staff in a conference in Taipei that the Windows 8 operating system is not completely ready by the release date. It is said that Microsoft's launch of Windows 8 as soon as possible was to compete with Apple's (NASDAQ:AAPL) iPad. Otellini commented that launching Windows 8 before it's fully ready is the right decision as Microsoft can offset the shortfalls in the software following its shipping. But yesterday, Intel issued a statement in response to the news about the comments made by its CEO. It said: "Intel, Microsoft and our partners have been working closely together on testing and validation to ensure delivery of a high-quality experience across the nearly 200 Intel-based designs that will start launching in October. Intel CEO Paul Otellini is on record as saying "Windows 8 is one of the best things that ever happened to Intel," citing the importance of the touch interface coming to mainstream computing and the huge wave of exciting new Ultrabook™, tablet and convertible device innovations coming to the market."

Obviously, the PC industry environment doesn't have a bright outlook. As mobile activity takes place via smartphones and tablets, the desktop computer is destined to shrink. In fact, Intel has warned investors of lower-than-expected revenue and profit. The company has cut its revenue forecast from the range of $13.8 and $14.8 billion to the range of $12.9 and $13.5 billion.

Currently Intel is trading at $22.55 per share, the total market capitalization is $112.57 billion. The market is valuing Intel at 9.5x P/E, 2.3x P/B and only 5.7x P/CF.

In my previous article on Intel, I mentioned: "If EPS 2012 was only around $2.25, the average figure that many analysts expected, Intel would be still trading at only 10.36x P/E. That valuation is still quite low compared to semiconductor valuation average of 15x." It seems to me that the slowdown in the PC business is already reflected in the share price.

So even though several firms have cut Intel ratings and lowered the price target on Intel, I am still bullish on Intel at the current market price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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