Morgan Stanley Dean Witter & Co analyst Mark Edelstone advised clients to buy shares of semiconductor maker Intel Corp in October. The stock rose 28 percent through Monday.
On Tuesday, Edelstone sounded the call again. In a note to clients, he said Intel can more than repeat that gain in the next 12 months and raised the shares to "strong buy" from "outperform." He said the company will indicate to analysts today that first-quarter revenue will reach the high end of estimates.
While Intel shares rose for a third day, some investors said they were hesitant to make new bets on the biggest chipmaker.
"The analysts are trying to position themselves before the big day" today, said Scott Vergin, who oversees US$4 billion in Aid Association for Lutherans/Lutheran Brotherhood in Minneapolis. "I like to think Edelstone is right. The question is, is [the good news] all in the stock price already? It probably is."
Vergin said he bought Intel shares in October and isn't adding more.
Other analysts have been less optimistic than Edelstone, who wasn't available for comment.
Lehman Brothers Inc's Dan Niles said Monday that Intel's earnings for this year and next will be US$0.02 a share less than he previous forecast at US$0.65 and US$0.98, respectively. He pointed to weak PC demand and cancellations because of double ordering and rates the stock "market perform."
On Feb. 21, Douglas Lee of Banc of America Securities cut his earnings estimate to US$0.65 a share from US$0.69 for this year. He rates Intel "buy."
Intel on Tuesday rose US$0.85, or 2.7 percent, to US$32.70, extending its three-day rally to 15 percent. The shares trade for 46.8 times projected 2002 profits, according to Thomson Financial/First Call, down from 47.1 in October, when Edelstone raised the stock to "outperform" from "neutral." Edelstone, who slipped to third from first among chip analysts in Institutional Investor magazine's survey of money managers last year, is one of 20 analysts tracked by Bloomberg who rate Intel "buy." Eleven say "hold," and there are no "sells." The Morgan Stanley analyst is one of the most optimistic among his peers on Intel's stock price. He expects it to rise 38 percent in the next 12 months, to US$45, as PC demand improves in the second half of the year. That's a level last seen in late 2000, when Internet shares came tumbling down as the economy slowed and many computer-related companies failed.
Only Jonathan Joseph of Salomon Smith Barney Inc sees Intel's stock price rising that high, according to First Call.
Intel is likely to suggest to analysts today that revenue will be at the higher end of its US$6.4 billion to US$7 billion estimate, Edelstone wrote.
Even better news will come as PC sales pick up in the second half of the year and remain strong throughout next year, he said. Many PCs will need to be upgraded soon since many were purchased during the 1998-1999 boom in computer sales, Edelstone said.
Edelstone expects earnings per share to surge to US$0.70 in this year, and $1.05 in next year. Intel's net income was US$0.19 a share in 2001, down from US$1.51 in 2000.
Mark's note "confirms our thesis," said Mark Herskovitz, manager of the US$1.5 billion Dreyfus Premier Technology Growth Fund, of which Intel is a main holding. "Intel's earnings will grow faster than the market expects," mainly because of advances that allow it to make more chips at a lower cost, he said.
"Over the next six months, their costs should decline more rapidly than pricing, which means their gross margin will go up," Herskovitz said.
There's another reason to be positive on Intel, said Scott Lawson, an analyst at Banc of America Capital Management, which owns Intel shares and manages US$280 billion.
While the stock has rallied since last year, it hasn't kept pace with other semiconductor shares of late. Intel fell 2 percent the past month, while the Philadelphia Semiconductor Index of 17 chip shares rose 14 percent, suggesting Intel may have more room to gain than its rivals if the economy rebounds and computer sales pick up.
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