Intel Shares May Be Too Cheap When Compared To Peers

Feb. 11, 2020 1:26 PM ETIntel Corporation (INTC)SMH18 Comments

Summary

  • Intel's business outlook has greatly improved.
  • Traders appear to be betting the stock will continue to rise.
  • Overall the trends in Intel are still favorable.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Get started today »

Intel's (NASDAQ:INTC) stock has risen sharply since reporting fourth quarter results and may be about to increase to even higher prices in the weeks ahead. The equity is currently trading at a cheap PE ratio when compared to some of its semiconductor peers in the VanEck Semiconductor ETF (SMH). This means the stock could see some significant multiple expansion ahead of it.

Additionally, analysts have been boosting earnings and revenue forecasts for the company, which suggests that analysts see the company returning to growth, a better outlook than previously believed.

Another positive sign is that it appears options traders are making bullish bets that the stock rises over the next few months. I noted similar trading patterns taking place among options traders in Intel before the company reported better than expected earnings results in my mMrketplace service Reading The Markets starting on Jan. 10. This activity started when the shares were trading around $59. Since that time the shares have surged by almost 15%.

Too Cheap Based on Peers?

Currently, the stock may be too cheap given a better than expected business outlook. Shares are now trading for around 13.5 times 2021 earnings estimates of $5.03 per share. While earnings estimates for 2021 reflect little growth, consensus estimates suggest a growth rate of about 10% in 2022, with earnings rising to around $5.52 per share.

That is well below the average PE ratio for the top 25 holdings that make up the SMH ETF of 19.7. It's also well below the median PE ratio of those same 25 stocks of 17.2. It, in some ways, suggests that Intel could see further multiple expansion in the future.

One reason why that multiple may expand is that the company reported strong fourth quarter results on Jan. 23. Earnings beat analysts' estimates by 21.4%, coming in at $1.52

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This article was written by

Mott Capital Management profile picture
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Designed for investors looking to stay ahead of the pack.

I am Michael Kramer, the founder of Mott Capital Management and creator of Reading The Markets, an SA Marketplace service. I focus on long-only macro themes and trends, look for long-term thematic growth investments, and use options data to find unusual activity.

I use my over 25 years of experience as a buy-side trader, analyst, and portfolio manager, to explain the twists and turns of the stock market and where it may be heading next. Additionally, I use data from top vendors to formulate my analysis, including sell-side analyst estimates and research, newsfeeds, in-depth options data, and gamma levels. 

Disclosure: I/we 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.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

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