Why Intel Corporation Shares Might Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Intel Corporation (NASDAQ: INTC  ) traded sluggishly on Wednesday after the chip gorilla posted in-line Q2 results and received a buy-to-neutral downgrade from B. Riley & Co.

So what: Along with the downgrade, B. Riley planted a price target of $29 on the stock, representing just 8% worth of upside to yesterday's close. While momentum traders might be attracted to Intel's price strength in recent weeks, B. Riley's call could reflect a growing sense on Wall Street that its valuation is becoming a bit stretched.

Now what: According to B. Riley, Intel's risk/reward trade-off is pretty balanced at this point. B. Riley said in reference to Intel's Q2:

Revenues were slightly below/in-line with the Street's $12.76B/$13.00B but the mid-yr ramp to 63% [gross margin] was a pleasant surprise. However, from there 2H14 tablet margin mix pressures GM 100-200 bps/qtr to leave OM flattish from 2Q14-4Q14 despite falling opex. ... For the stock -- which we upgraded to 'Buy' in mid-October expecting PC stability to ultimately price in, we believe this sets up a tough 2H14 catalyst profile at a time when PCG's qq growth risks escalate.

Of course, when you couple Intel's structural advantages with its juicy 3.5% dividend yield, those short-term concerns might be providing patient Fools with a solid long-term income opportunity.

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  • Report this Comment On April 16, 2014, at 9:27 PM, hannibal1974 wrote:

    Intel will absolutely crash one day soon, and it will crash hard! PC sales have dropped dramatically and that spells doom for the chip maker. It was slow to enter the mobile market and will never catch up to the leaders. Intel is panicking and making poor decisions like the acquisition of McAfee. McAfee has one of the poorest reputations among IT professionals and is poorly managed. Intel is an absolute sell. Sell it and sell it quick!

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