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What’s Making Morgan Stanley Bullish on Intel?

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Mar. 1 2019, Published 6:58 p.m. ET

A finance-focused CEO takes the driver’s seat

Morgan Stanley recently turned bullish on Intel (INTC), upgrading its rating on the stock to “overweight” from “equal-weight,” according to a note to clients cited by CNBC. The company also raised its price target for Intel stock to $64 from $55. These developments mark the first time in seven years that Morgan Stanley has turned bullish on Intel—what gives?

Morgan Stanley seems impressed by Intel’s decision to pick a financially oriented CEO rather than a technology-focused CEO. Last month, Intel named Bob Swan as its new CEO, replacing Brian Krzanich. Swan, an Intel insider, had been the company’s CFO since 2016. Given Swan’s financial background, Morgan Stanley sees Intel improving its capital allocation to speed up value creation for shareholders.

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Intel’s capital allocation last year

Intel generated $14.3 billion in free cash flow last year, and returned $16.3 billion to shareholders through dividends and share repurchases. The company spent $2.3 billion to repurchase 51 million shares in the fourth quarter. In comparison, Qualcomm (QCOM) spent $1.0 billion to repurchase 17 million shares in the December quarter. Last year, Qualcomm announced its repurchase of up to $30 billion in stock after it canceled its plan to acquire Dutch chipmaker NXP Semiconductors (NXPI). Broadcom (AVGO) spent $1.5 billion on share repurchases in its fiscal fourth quarter (ended in November).

Intel exited last year with $11.7 billion in cash after putting $15.5 billion toward capital expenditure. The company is expecting to generate $16 billion in free cash flow this year. Advanced Micro Devices (AMD) closed 2018 with $1.2 billion in cash.

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