Goldman Downgrades Intel

It says margins and its stock price might be peaking.
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Intel

(INTC) - Get Report

fell Thursday after Goldman Sachs cut is rating on the stock to neutral, saying its margins could be peaking.

The investment bank noted that its downgrade reflects an intermediate-term assessment and predicted a strong midquarter update in September. Still, Goldman says that when Intel's margins peak on a gross, operating and EBITDA basis, this "has historically coincided with a peak in the stock."

Goldman also noted that Intel is making big capital investments this year, a move that has "historically led to a deterioration in margins and revenue in the

subsequent year."

"While valuations may appear reasonable based on a 2006 price-to-earnings ration of 17, we believe that normalized earnings and cash flow are a much more appropriate metric to use when valuing cyclical stocks," Goldman wrote. "At 22 times estimated normalized EPS of $1.22 and an implied free cash flow growth rate of 6.4%, we believe the stock is not undervalued."

Intel was recently down 47 cents, or 1.8%, to $26.41. Goldman has an investment-banking relationship with the company.

Goldman, which is transferring coverage of some semiconductor stocks to a new analyst, also lowered

Freescale

(FSL)

to in-line from outperform, noting that the stock is up 90% since coming public a year ago.

Freescale was recently down 52 cents, or 2.1%, to $24.48.