Intel's Fuse Awaits Spark

The fourth-quarter report came amid lackluster expectations -- similar to the chatter ahead of Thursday's midquarter update -- and shares rose 2.8% after the company's profit.

Analyst Charlie Glavin of Needham & Co. looks for Intel's stock to rise once the company's margins -- the pivot around which its shares typically turn -- begin to expand. Intel has targeted margin expansion for the entire year of 58%, up from 57.7% in 2004. On a quarterly basis, however, Intel's margins should expand sequentially through the year.

Glavin noted that Intel's current stock price places its price-to-earnings ratio at 19 times 2005 earnings -- a 30% discount to the Philadelphia semiconductor index and a 10% premium to the S&P 500. (Needham has done no investment banking with Intel.)

If investors get an all-clear sign for the first quarter -- a period during which margins are already expected to contract from the fourth quarter -- and feel confident that margins and fundamentals are on the way up for the remaining nine months of the year, the possibility exists that the $25 ceiling on the stock becomes a floor.

>To order reprints of this article, click here: Reprints