Intel stock rises over 2%
Intel (INTC) stock rose over 2% on February 22 after Morgan Stanley analyst Joseph Moore upgraded the stock to overweight and raised its price target from $55 to $64, representing an upside of 25% from its current price. For a less volatile stock like Intel, which has a beta of 0.52, a 2% move is big when the market moves less than 1%. Beta is a measure of volatility where the market has a beta of one, and anything above one indicates higher volatility.
This brings us to the question of what made investors optimistic on the stock.
Why is Morgan Stanley analyst bullish on Intel?
According to CNBC, Joseph Moore upgraded Intel, as he believes that its recently appointed CEO Bob Swan will prove to be a catalyst and drive its valuation, which is near its historical lows. A stock’s valuation is calculated by dividing its stock price by its fundamentals. Intel is trading at a PE ratio of 11.7x. The last time it traded at this ratio was in 2013.
Hopes for Intel’s new CEO
When Bob Swan was appointed as the permanent CEO of Intel on January 30 after serving as interim CEO for seven months, its stock fell 3% as investors wanted a CEO with a technology background. However, Joseph Moore believes that Bob Swan’s financial background will help bring greater financial discipline for Intel, which has a tendency “to become enamored with technology over economics.”
Joseph Moore expects Bob Swan to better optimize Intel’s portfolio and process and address its technology issues from a risk/reward perspective, which means undertake projects that deliver better reward for minimal risk. The company is currently developing its own graphics card, 5G (fifth generation) modem, non-volatile Flash memory, and autonomous driving platform. It remains to be seen how Bob Swan maximizes returns from these projects or scraps some of the projects.
Intel has a history of not so successful M&As (mergers and acquisitions). The company spun off McAfee and dissolved Wind River and Saffron a few years after acquiring them. Joseph Moore believes that Bob Swan will optimize Intel’s free cash flow and make M&As more accretive. Intel is rumored to be interested in acquiring Israel-based big data connectivity company Mellanox (MLNX).
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