JPMorgan, Citadel Square Off on Intel

BOSTON (TheStreet) -- Intel(INTC), though it's the world's largest chipmaker, can't generate much enthusiasm for its stock, which has fallen 18% during the past 12 months.

But, today, Intel posted adjusted first-quarter earnings of 59 cents and revenue of $12 billion, compared with 43 cents and $10 billion a year earlier, and beating analysts' consensus. Intel's stock rose as much as 6% in after-hours trading, signaling bullish sentiment.

Still, despite expectations for growth as the global economy rebounds, near-peak profit margins, a discount valuation and a solid yield, Intel's stock had dropped 6.3% in three months, underperforming the Dow and S&P 500. Still, Intel's equity is attractive.

In addition to boasting a dominant market share in various semiconductor subsets, Intel has now exceeded consensus profit forecasts for nine consecutive quarters. Before today's report, trailing 12-month gross and operating profit margins, at 76% and 36%, had ranked in the 97th percentile for the chip industry. Return on equity and return on assets, the key measures of business profitability for investors, at 23% and 18%, are also impressive. Yet, Intel's stock is cheap relative to peer investments, trading at a forward earnings multiple of 9, a book value multiple of 2.2, a sales multiple of 2.5 and a cash flow multiple of 6.5, discounts of up to 50%. Due to those discounts, TheStreet Ratings rates the company "buy."

Intel can't catch a bid. Although it receives a generally favorable review from analysts, with 62% ranking its stock "buy," opinions vary widely on the company's trajectory. Raymond James, the most bullish brokerage on Intel, forecasts that its stock will advance 61% to $31.50 in the next 12 months. In contrast, JPMorgan rates Intel "neutral" with a $20.50 price target, suggesting the stock has a modest 5% upside. JPMorgan issued a report last week, speculating that Intel would miss the quarterly sales consensus, citing lower Asia notebook shipments and weakness in the PC market, Intel's bread-and-butter. TheStreet Ratings awards Intel its lowest score -- 1 out of 5 -- for sales growth, implying the chipmaker is stagnating.

JPMorgan says Intel's assumptions for 2011, which include PC unit sales growth of 12% to 15% and netbook growth, are too optimistic. Also, the bank is concerned about a recent inventory build, noting that Intel's inventory reserve hit 94 days in the fourth quarter, well above its long-term average of 78 and the second-highest level in 15 years. JPMorgan argues that Intel's current discount valuation may be difficult to shed, as other mega-cap techs, including Microsoft(MSFT), Hewlett Packard(HPQ) and IBM(IBM), are trading at comparable bargains and generating little investor interest, despite solid fundamentals.