Intel looks at a better year as rating upgrade fuels recovery

Shares of Intel (INTC) gained Friday after Bank of America Merrill Lynch raised its rating on the stock to buy from neutral. The upgrade comes at a time when the chipmaker needed it the most, considering the deepening slowdown in the semiconductor industry. The bank also raised its price target to $60 from $52. For a large-cap company like Intel, the stock is modestly priced, making it a viable investment option.

The positive rating change complements the management’s upward revision of the company’s sales forecast last year. Despite a decline in the growth rate, the outlook for the current fiscal year is fairly positive, thanks to the company’s exposure to the relatively-stable PC and data center segments. With Intel’s growth projected to exceed the industry this year, it can bring handsome returns to investors.

The upgrade came at a time when the chipmaker needed it the most, considering the deepening slowdown in the semiconductor industry

The analyst also factored in Intel’s inventory position that is much better compared to its peers. The stable demand in the traditional markets, combined with the company’s impressive scale, will help it emerge from the lows seen last year when chipmakers faced multiple challenges including competition and unfavorable macroeconomic conditions in the global market.

Intel Q3 profit jumps 42%, beats estimates

However, it is estimated that the cyclical nature of the semiconductor industry and the trade tension between Washington and Beijing might remain a drag on both the sector and the company. To Intel’s advantage, it is better positioned to face the headwinds in an increasingly volatile market. It is expected that things will change for the better once the company finally finds a new chief executive officer to succeed Brian Krzanich who resigned last year.

The descent of Intel’s stock from the 10-year high it achieved a few months ago continued so far this year.  However, the shares opened Friday’s session sharply higher and maintained the uptrend throughout the day. With an average intra-day gain of about 6%, the stock traded slightly above the levels seen twelve months ago.

Taking a cue from the market’s bullish view on Intel, rival chipmakers Advanced Micro Devices (AMD) and Micron (MU) gained 6% and 12% respectively Friday afternoon.

Get access to timely and accurate verbatim transcripts that are published within hours of the event