Intel CEO Choice Not Liked by Market
In its glorious past, Intel Corporation (NASDAQ:INTC) was the leading chipmaker in the world, producing the fastest chips used in the central processing units of computers.
But instead of producing the next generation of chips for the new technologies such as mobile and the Internet, Intel somehow lost its bearing and has fallen behind.
Chipmakers like NVIDIA Corporation (NASDAQ:NVDA) emerged as the dominant players in the mobile and Internet space while Intel faced a bleak future making chips for computers.
Now the story may seem gloomy for Intel, but you simply can’t write off a company that is valued at $214.0 billion, well above the size of NVIDIA or Advanced Micro Devices, Inc. (NASDAQ:AMD).
The problem is that Intel (which has been looking for a new leader for six months), surprised the market on January 31 after announcing that its interim CEO, Robert Swan, would be leading the company forward at this critical time.
Clearly, the market was not pleased, as INTC stock fell on the news.
The thing is, given that INTC stock is down 19% from its 52-week high and up a mere 1.27% over the past year, the market really wanted to hear something else.
The move by Intel appears to be a decision to upset the traditional norm at the company, appointing a CEO that didn’t rise in the organization. Moreover, the fact that Swan was Intel’s former chief financial officer and not a technical guru shrikes investors.
Now I’m not judging on the merits of the decision (only time will tell), but you would think Intel should have found someone with expertise and vision in the new technologies.
Why Intel Needs to Prove Itself
The chart below indicates the indecision on the part of investors toward INTC stock.
Following the breakdown from the $57.00 level in June 2018, Intel stock has drifted in a sideways channel bounded by $43.00 and $50.00.
INTC stock is in a holding pattern at around its 50-day moving average but below its 200-day moving average, a sign the market is unclear on Intel.
Chart courtesy of StockCharts.com
A plus is that Intel has managed to grow revenue in three straight fiscal years, but the outlook for the next two years is disappointing.
|Fiscal Year||Revenue (Billions)||Growth|
(Source: “Intel Corp.” MarketWatch, last accessed January 31, 2019.)
Intel is expected to report meager revenue growth of 0.9% to $71.5 billion in fiscal-year 2019, followed by a slightly better growth of 330% to $73.9 million in fiscal-year 2020. (Source: “Intel Corporation (INTC),” Yahoo! Finance, last accessed January 31, 2019.)
But Swan will have time to turn things around given the strong profit picture and generating over $10.0 billion annually in free cash flow.
A quick look at INTC stock shows a potential value trap. Intel stock trades at only 9.87 times its fiscal-year 2020 earnings per share and it has a price/earnings-to-growth ratio of 1.02, which seems really cheap on the surface. But given the muted revenue growth, the valuation is valid.
What is intriguing is that, if Intel’s CEO can re-energize the company, the price of INTC stock could easily stage a rally to above $60.00.