Intel Inc. – A Growth Story, Still

While the growth in smartphones, laptops and the new Apple (NASDAQ: AAPL) launch makes for great breaking news; the discerning investor has to look beneath the glossy surface to find value. While Jefferies has published an analysis on Intel Inc. (NYSE: INTC) on Friday recommending the stock and providing a $30 price target, we believe the rise in the stock prices due to the report was not high enough.


The upgrade helped the stock gain 81c, or 3.6%, to end at $23.44. We believe the market reaction was muted and we see the stock gain another 10% from here within the next six to nine months.

From a purely valuation standpoint, Intel is trading at a 12.76 PE on its trailing 12-month EPS of $1.84. This can be compared to a S&P PE multiple of 14. This implies that the market does not have any faith in the growth aspect of the company, which is counter to global device shipments data. We also know that with the launch of Haswell, its new quad-core core processor, Intel is moving laptop computing towards a new direction. The Haswell chips are likely to save 50% more battery life on laptops.

The markets are probably overlooking the two facts that are making us bullish on Intel’s growth prospects:

Nearly 70% of Intel’s revenues are from the Asia-Pacific region. While tablets are the wave of the future and PC/laptops sales are falling globally, market penetration for computers in APAC is low and this segment of Intel’s revenue has been growing at 15% per year, over the past three years.

The other is Intel’s rising revenue from its Data Center Group. Intel’s processors and solutions for Data Centers contribute to over 20% of its revenues. With the rise in Big Data analytics and related data processing, we expect an excellent growth in this sector of Intel’s business. It has already been growing at 18.5% per year over the last three years and we see that continuing in the foreseeable future.

With a $2.00 EPS and a S&P equivalent 14PE, we can easily see the stock moving up to $28. It has already breached that level in the last 6-months and it will not surprise us if it went there again. With a 3.4% dividend yield based on Friday’s price and a 6-month price target of $28, the discerning investor will find significant value in Intel at its current price.

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