Intel (INTC -2.15%) stock crashed in Friday morning trading, down 5.6% as of 11:55 a.m. ET after the company held an investor meeting to lay out its "2022 and long-term growth strategy."
Hearing the news, analysts at two investment banks -- Barclays and BMO Capital, rushed to lower price targets on the stock, while a third, Bank of America, warned that investors might see "no reward until 2026" from the plan, reported TheFly.com.
So what did Intel say to so spook those analysts -- and traders, too?
Basically, the story goes like this: "The continued proliferation of technology is driving sustained, long-term demand for semiconductors, creating a $1 trillion market opportunity by 2030," said Intel CEO Pat Gelsinger. But Intel will need to invest heavily before it can take advantage of this opportunity -- and getting there will take some time.
Eventually, the company says it's aiming to reach a pace of 10% to 12% year-over-year revenue growth by 2026. But in an illustration of how hard this hill will be to climb, Intel is forecasting only $76 billion in revenue for 2022 -- 4% less than it collected in 2021. Gross profit margins on those revenues will also fall steeply -- from 55.4% in 2021 (according to data from S&P Global Market Intelligence) to just 49.6% in 2022 -- as the company invests heavily to support its growth goals.
With revenues and profit margins both dropping, investors can anticipate lower earnings as well. Instead of the $4.86 per share that Intel earned in 2021, management says investors should expect earnings of no more than $3.55 per share in 2022 -- with negative free cash flow, to boot.
This bleak short-term view is the most likely reason Intel stock is selling off Friday.
Longer term, however, the outlook appears brighter. After that expected contraction in 2022, Intel management anticipates that in both 2023 and 2024, the company will return to growth in the mid-to-high-single-digit percentage range with profit margins in the 51% to 53% range. This will be followed by 54% to 58% profit margins in 2025 and beyond, and the promised 10% to 12% revenue growth rate by 2026.
By that point, Intel thinks it should be generating "adjusted" free cash flow in the neighborhood of 20% of revenue, too. So ... fingers crossed.