Will Intel Stock Likely Go Up To $60 In 2022? Consider Management Guidance And Valuations

Summary

• Intel Corporation's management guidance revealed at the 2022 Investor Meeting suggests that its FY 2022-2024 financial performance won't be good as it enters a significant investment cycle.
• INTC's shares need to rebound to $60 to generate an estimated one-year total shareholder return of 20% to justify a Buy rating.
• I retain my Hold rating for Intel Corporation, as I don't see the stock being able to rise to $60 based on a review of its valuations and management guidance.
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Elevator Pitch

I continue to rate Intel Corporation (NASDAQ:INTC) as a Hold. In my prior article written on February 10, 2022, I evaluated INTC's financial performance for the fourth quarter of 2021.

In this latest article, I determine if investors can realize a reasonable total shareholder return of 20% or higher within a year by investing in Intel Corporation's shares now. After assessing the company's updated management guidance and the stock's valuations, I come to the conclusion that it will be hard for INTC's shares to rise to $60 (implying a 20% return) by the end of this year. Therefore, I choose to maintain my Hold rating for Intel Corporation.

INTC Stock Key Metrics

The key metrics that investors should pay attention to are those that Intel Corporation disclosed at its 2022 Investor Meeting on February 17, 2022.

INTC's intermediate-term revenue and profitability guidance are largely in line with prior expectations, but the company's free cash flow guidance was disappointing.

I noted in my earlier February 10, 2022 update for INTC that Wall Street analysts had expected a "revenue CAGR of +3.5%" and gross profit margin in "the 52%-53% range" for the next three years (FY 2022-2024). As per its 2022 Investor Meeting press release, Intel Corporation expects its topline to expand by +1.7% in FY 2022, before growing by a "mid-to-high single digits" CAGR for the FY 2023-2024 period. INTC sees the company's gross profit margin at 52% in the current fiscal year, and it estimates that its gross margin will stay in the "51%-53%" range for fiscal 2023 and 2024. There are no surprises here.

But Intel Corporation's guided negative free cash flow of $1-$2 billion or a mid-point forecast of -$1.5 billion was worse than the sell-side analysts' consensus positive free cash flow estimate of approximately +1.3 billion prior to the 2022 Investor Meeting as per S&P Capital IQ. Furthermore, INTC expects a "neutral" (i.e., zero) adjusted free cash flow for the FY 2023-2024 period based on assumptions of a 35% capital expenditure-to-revenue ratio.

At the 2022 Investor Meeting call, INTC attributed its weak free cash flow guidance in the next three years to the fact that the company will still be in "investment phase" during this period. Notably, there are worries that there could be further downside to the company's medium-term free cash flow and profitability guidance. An analyst from Raymond James Financial (RJF) questioned at the 2022 Investor Meeting whether Intel Corporation will "run a risk of margin erosion or more importantly, free cash flow burn" assuming that "market conditions could soften" in 2023 and 2024. In response, Intel Corporation assured investors that "we're definitely going to manage" the pace of investments and capital expenditures. But these are clearly valid concerns raised by the RJF analyst.

I warned in my previous February 2022 Intel Corporation article that INTC's "intermediate term outlook" wasn't "encouraging." The company's key metrics as per its 2022-2024 guidance revealed at the recent Investor Meeting validate my prior views.

Is Intel At A Fair Valuation?

It is worth noting that insiders, namely Intel Corporation's Chairman and CEO, have bought INTC's shares in the $44-$45 range in late-February, 2022, as indicated in a Seeking Alpha News article published on February 27, 2022. INTC last traded at a stock price of $51.43 as of March 30, 2022, which is roughly around +14-16% higher than where its shares were trading at the time of the management's share purchases. This suggests that Intel's shares are less likely to be significantly overvalued at current price levels, with the company's key insiders recently buying and holding on to their INTC shares.

But I don't view Intel Corporation's shares as substantially undervalued either.

As per S&P Capital IQ, Intel Corporation currently trades at a consensus forward fiscal 2023 normalized P/E multiple of 13.8 times. This matches well with INTC's forward earnings growth and ROEs, and implies that the stock is probably at a fair valuation. The analysts' consensus financial forecasts point to Intel Corporation growing its normalized net profit by an FY 2023-2024 CAGR of +10.3% and delivering ROEs in the mid-teens percentage level during this forecast period.

In the subsequent section, I assess Intel Corporation's stock price outlook.

Can Intel Stock Reach $60 In 2022?

Investors looking to own shares in Intel Corporation with an investment time horizon of up to a year in mind might expect INTC's share price to rise to at least $60. Intel Corporation's closing price was $51.43 as of March 30, 2022. If INTC rises to $60 by the end of 2022, this will translate into a total shareholder return of +19.5% (or almost +20%) based on a capital appreciation of +16.7% and a consensus forward FY 2022 dividend yield of +2.8%. A one-year investment hurdle rate of at least 20% is quite reasonable.

But sell-side analysts don't believe that Intel Corporation's shares can go up to $60 this year. The consensus price target for INTC is $54.17, which only implies a capital appreciation upside of just +5%. More importantly, a $60 per share valuation for Intel Corporation is equivalent to a consensus forward FY 2023 normalized P/E of 16.1 times. Notably, INTC has never traded above 16 times consensus forward next twelve months' normalized P/E in the past decade according to historical valuation data sourced from S&P Capital IQ. The highest Intel Corporation's forward P/E multiple has been in the last 10 years was 15.9 times. In other words, a $60 target price for INTC seems pretty demanding.

Also, investors have to believe that Intel Corporation can achieve its target of +10%-12% topline expansion on an annual basis for the fiscal 2025 and 2026, which it guided for at its Investor Meeting in February 2022. It seems challenging for INTC to realize its long-term management guidance.

In the last decade between FY 2012 and FY 2021, INTC witnessed negative revenue growth in three of these 10 years, and only managed to increase its topline by more than +10% in a single year (+12.9% in FY 2018). Looking ahead, Intel Corporation's Data Center Group business is expected to continue ceding market share to AMD (AMD) as I highlighted in my prior November 16, 2021 article for INTC. On the other hand, INTC's other key business segment, the Client Computing Group, will have to contend with normalized consumer PC demand in the years ahead, as substantial consumer PC purchases were pulled forward in the last few years due to WFH (Work-From-Home) tailwinds brought about by COVID-19.

In conclusion, I don't think Intel can reach $60 in 2022.

Is INTC Stock A Buy, Sell, Or Hold?

INTC stock stays as a Hold. Intel Corporation's current valuations are reasonably fair and in line with the consensus FY 2023 and FY 2024 financial metrics for the company. I don't think investors can achieve a minimum 20% total shareholder return with Intel's shares in a year, which makes the stock a Hold.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.