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Goldman Downgrades Intel

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

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"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



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.