Why Intel Corporation Shares Might Pull Back

Does this analyst make a good case? Or is it just more noise from Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 16, 2014 at 1:41PM
Technology and Telecom

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.