Shares of Intel (NASDAQ:INTC) popped to fresh 2019 highs in late October after the semiconductor giant reported strong third-quarter earnings that smashed expectations across the board. The post-earnings surge continues what has been a strong performance for Intel stock this year. In 2019, INTC is up an impressive 20%.
The big question now is: will the red hot rally of INTC stock continue?
In short, yes. Intel’s Q3 earnings report was very strong in all the right areas and underscored that this company is appropriately capitalizing on its huge opportunity in the ever-growing data economy. At the same time, the macro-economic environment is improving. This double-positive catalyst makes it likely that INTC will head towards $60 in the near future.
Consequently, investors should stick with INTC. This company appears to be getting back into growth mode, and as it does, the stock will grind higher.
Intel’s Q3 Report Was Very Good
Intel’s Q3 earnings report was very good, and ultimately underscored that this company’s growth drivers are coming back into the picture.
Specifically, Intel’s growth outlook is all about data. Over the past several years, INTC has pivoted its business to capitalize on the huge opportunity in the ever-growing data economy. At first, this pivot yielded great success for INTC. As its data-centric business generated high revenue growth quarter after quarter, INTC stock broke out.
But this pivot hit a snag in 2018. Rising geopolitical uncertainties, centered around the U.S.-China trade war, weighed on global business confidence, which caused companies to reduce their investments in semiconductor equipment. The whole data economy was hit hard, and Intel’s data-centric business went from high growth to negative growth. As a result, Intel stock dropped.
Intel’s Q3 report, however, showed that its data business is bouncing back. Specifically, the revenues of Intel’s data-centric business were supposed to fall by about 5% in the quarter. Instead, its data-centric revenues rose 6% because improving conditions in the global data economy raised corporate confidence and eased global trade tensions.
As a result of the bounce back of the data business in Q3, Intel: 1) beat average revenue expectations, 2) beat average profit expectations, 3) beat average margin expectations, and 4) lifted its full-year revenue, margin, and profit guidance.
The broad implication is that, thanks to improving global demand for data, Intel’s growth machine is getting back to firing on all cylinders. That’s great news for INTC bulls.
Intel Stock Can Run to $60
Given that Intel’s data-centric business is back in growth mode, INTC stock can run towards $60.
Over the next several years, Intel looks poised to be a healthy, low-to-mid single-digit-percentage revenue grower, driven by promising products in the continuous-growth data market. For the balance of this year, Intel will get a nice lift from easing global trade tensions and reinvigorated global capital expenditures.
Next year, INTC will get a nice lift from the mainstream rollout of 5G coverage around the world. In 2021, Intel will get another lift, this time from the deployment of its 7-nanometer products in the datacenter market. All the while, data and artificial intelligence tailwinds will provide a nice boost to all of INTC’s businesses.
At the same time, gross margins should trend higher as Intel pushes into more valuable AI end markets and its spending drops as it grows and focuses more intently on cost cutting.
All in all, Intel looks poised to be a stable revenue grower, while multiple factors should increase its margins over the next few years. That combination paves a path for its earnings per share to hit $6 by 2025. Based on a price-earnings multiple of 16, which is average for the semiconductor sector, my 2024 price target for INTC stock is $96. Discounted by 10% per year, that equates to a 2019 price target for INTC of about $60.
Thus, favorable long-term growth fundamentals look poised to enable INTC stock to hit $60 within the next few months.
The Bottom Line on INTC Stock
Intel’s strong Q3 earnings report confirmed that this company’s data business is back on track. With its business back on track, INTC stock has enough firepower to take out the $60 level within the next few months.
As of this writing, Luke Lango was long INTC.