Intel's Changes at the Top Are Reason for Optimism, Says Jefferies

Intel shares are upgraded to hold from underperform.
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Intel  (INTC) - Get Report shares rose Tuesday after analysts at Jefferies upgraded the stock to hold from underperform on optimism that recent changes to the chip company's management team will provide a boost in 2020 and 2021.

The semiconductor maker has experienced a lull in recent years thanks to increased competition from Advanced Micro Devices  (AMD) - Get Report, but that lull could be over now that the company has made these management changes. The firm noted that over the past six years 10 long-standing senior executives with 23 to 42 years of experience have left the company, “while more recently at lease a half-dozen new seniors have joined.”

“There is a short window of opportunity for Intel to halt its stock’s underperformance, and it seems to us that the company is positioning to do so,” Jefferies wrote in the note.

The firm also boosted Intel’s price target to $64 from $40. The new price target represents a potential 7% upside from the stock’s previous closing price of $59.60. Intel shares were rising 1.8% in trading Tuesday.

Additional catalysts for the company include the divesting of Intel’s memory business, which Jefferies analysis estimated could add 16 cents of earnings per share, 260 basis points to operating profit margins and 1.0x to the company’s price-to-earnings ratio thanks to $2.3 billion in higher annual capital return.

Despite these potential tailwinds, the firm remains cautiously optimistic.

“We increase our price target to $64 assuming that the company divests memory (Focus) and cuts OpEx (Frugality). Fixing its manufacturing or moving to a Fabless model potentially addresses our share concerns, but we assess a low probability of either... for now,” Jefferies said.