After a disappointing three years, Intel (NASDAQ:INTC) recently shook up management and appointed Brian Krzanich as its new CEO. The company has shifted its focus from personal computers to becoming a player in the smartphone and tablet markets, but is it too late to the party? Let's use relevant sections of our CHEAT SHEET investing framework to see whether Intel is an OUTPERFORM, WAIT AND SEE, or STAY AWAY.
C = Catalysts for the Stock's Movement
Let's start with the bad news first: the future doesn't look bright for Intel's core business of PC microprocessors. International Data Corporation predicts the PC market will fall to 333 million units sold in 2017—4.5 percent less than the number of units sold in 2012. This decline is alarming since two-thirds of Intel's profits come from sales of microprocessors for PCs. The sell-side has remained pessimistic on Intel because of the inevitable decline in the PC market as tablets and smartphones continue to cannibalize PC sales. Still, Intel holds an 80 percent market share in desktop microprocessors and an 87 percent market share in notebook microprocessors. The PC business will continue to generate a large chunk of change for Intel's coffers.
Intel currently holds a paltry one percent market share in the growing tablet and smartphone microprocessor space. ARM Holdings (NASDAQ:ARMH) is the dominant player in this market—its chips currently power the newer Apple (NASDAQ:AAPL) iPhone and iPad products. Intel hopes to steal away some of ARM's market share with its new line of processors—Haswell, Merrifield, and Bay Trail—that will be released in the second quarter of this year.
During Intel's May shareholder meeting, newly appointed CEO Brian Krzanich spoke strongly of the company's fresh commitment to mobile. Shares have surged 2.8 percent since Krzanich's appointment. Samsung has already announced that it will incorporate Intel microprocessors in its new Galaxy Tab 10.1 device. Also, Microsoft's (NASDAQ:MSFT) new line of tablets for the holiday season will use Intel chips. With its PC Client Group business falling 6 percent over the past year, Intel's newfound commitment to the smartphone and tablet markets has given a much-needed boost to investor confidence and Intel's share price.
E = Excellent Relative Performance to Peers
Intel's recent good news has coincided with a steady decline in competitor ARM's share price. ARM has fallen 18 percent since Intel announced its new CEO, and recently broke through its 200-day moving average going the wrong direction. Moreover, ARM trades at an extraordinarily high price-to-earnings multiple of 61.31. To be fair, with the lion's share of the fast-growing mobile and tablet market, this high multiple may be justified. Investors, however, can get Intel for much cheaper at a price-to-earnings multiple of 12.17 as well as the promise of future upside in the mobile market.
T = Technicals are Strong
Shares of Intel are trading at around $24.45. The stock is trading right around its 50-day moving average of $24.42 and its 200-day moving average of $22.12, suggesting that Intel is experiencing a strong uptrend. The stock is trading near its 52-week high of $27.75. Intel's 50-day moving average recently broke through its 200-day moving average suggesting that investor sentiment is positive. Trading volume has tapered off somewhat from high levels in January and April.
Conclusion
While Intel has struggled in the past several years to reinvent it business operations and penetrate the mobile market, it seems that new CEO Krzanich has the company on the right track. Intel has secured several vital contracts in the smartphone and tablet industry that will pave the way for future growth.
No comments:
Post a Comment