Although Intel (INTC-US) has suffered heavy losses, it is not exhausted. At least one analyst thinks the semiconductor giant’s stock could be worth a lot more than Wall Street generally believes.
Intel reported one of the worst earnings reports in history last week, as well as a disappointing forecast. Intel is suffering from slowing PC sales, weak demand from data center customers and continued market share erosion by rival AMD (AMD-US).
Intel’s second-quarter revenue of $15.3 billion and adjusted earnings of 29 cents a share were both below the $17.9 billion and 69 cents forecast by former Wall Street analysts. For the third quarter, the company expects revenue of $15 billion to $16 billion, well below analysts’ forecast of $18.7 billion. Bernstein wafer analyst Stacy Rasgon called Intel’s second-quarter earnings the “worst” he’s ever seen.
Meanwhile, Intel has committed about $100 billion to build new fabs in Arizona, Ohio and Europe to more directly compete with Taiwan Semiconductor Manufacturing Co (TSM-US) (2330-TW). It’s a bet that will take years to pay off, and it’s not a small risk.
Intel was once the most valuable U.S. chip company, and its $151 billion market cap is now overshadowed by AMD’s $155 billion, Texas Instruments (TXN-US) $162 billion, Broadcom (AVGO-US) $216 billion, and NVIDIA (NVDA) -US) surpassed by $457 billion.
Investment bank Northland analyst Richard (Gus Richard) pointed out in a research report on Monday (1st) that Intel’s current market value is much lower than the value of the various businesses combined. He maintained an “outperform” rating on Intel stock with a price target of $55, representing a potential upside of more than 50% from recent stock levels.
Intel closed up 1.8 percent at $36.86 on Monday.
Richard takes a sum-of-the-parts approach to Intel. He sees the company’s manufacturing assets as having “significant strategic value” to the United States. According to the sum-of-the-parts valuation method, Richard thinks Intel should be worth as much as $235 billion; equivalent to his $55 price target.
He estimates that Intel’s ownership, plant and equipment, such as fabs and its existing wafer fabrication tools, are worth $71 billion, which is the book value on Intel’s balance sheet.
Richard also believes that Intel’s factory can be spun off into an independent company. “Considering the strategic value, it is expected that the United States and other countries will help finance Intel’s manufacturing, and Intel’s products will continue to be produced in the spun-off factory.” Intel’s manufacturing assets could also be combined with Global Foundries (GFS-US).” He estimates the combined company would have annual revenue of $26 billion, about half the size of market leader TSMC.
Richard also estimates that Intel’s representative products, which include chips for PCs, data centers, networking and graphics, are worth at least twice its projected 2022 revenue of $61 billion, or $122 billion.
The next two businesses: Mobileye’s self-driving unit and Altera. The latter produces a class of chips called FPGAs (Field Programmable Gate Arrays). Mobileye plans to IPO as soon as this year, and Intel estimates the business is worth $50 billion; Richard conservatively estimates Mobileye’s value at $30 billion. As for Altera, he compares it to a similar valuation of major rival Xilinx, which is $12 billion.
“With a de-risked estimate, strong valuation support, and a 4% dividend, even if Intel’s business execution is mediocre, the downside risk is minimal and there is still plenty of upside,” Richard concluded.