Four Reasons Why Lehman Is Bullish On The PC Processor Sector

Includes: AMD, INTC
by: Eric Savitz

Intel (NASDAQ:INTC) shares got a lift Thursday from an upgrade of the stock to Overweight from Equal Weight by Lehman’s Tim Luke. He also had some bullish comments on the outlook for Advanced Micro Devices (NASDAQ:AMD).

Luke gave four reasons for his more bullish stance on the PC processor sector.

  • New product cycles and OEM restocking ahead of a seasonally stronger second half.
  • Shift from desktop to notebooks, where Intel has higher ASPs.
  • Ongoing margin improvement and progress on restructuring moves.
  • Valuations still reasonable, despite 16% year-to-date return.
  • Luke says he sees “encouraging” traction, with Dell (NASDAQ:DELL) building for its retail push and Hewlett-Packard (NYSE:HPQ) restocking inventory. He upped his second quarter revenue estimate for Intel to $8.6 billion from $8.5 billion, with EPS up to 20 cents a share from 19 cents.

    His price target on Intel goes to $28 from $24.

    Luke also had encouraging words for AMD, though he maintains an Equal Weight rating on the stock:

    For AMD, we also see an improved 2Q07, and our checks suggest despite some possible slippage, Barcelona is seeing interest from heavy math/computation workloads. Seasonal guidance (even with limited visibility) and an analyst day (July 26th) outlining the potential move to an outsourcing model may help the shares edge upwards in our view.

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    Tagged: , Semiconductor - Broad Line
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