Baird Raises Target Price On Intel Following Raised Guidance

Following Intel Corporation (NASDAQ: INTC) meaningfully raising its third-quarter revenue guidance last Friday, Baird bumped up its estimates and price target.

Leaping Ahead On Data Center Momentum

The firm's senior research analyst Tristan Gerra believes accelerating data center order momentum will benefit the company in the fourth quarter and well into the first quarter of 2017.

PC Market Slump Slowing

The optimism vested on the U.S. chip giant is also due to Baird's expectations that the year-over-year decline in PC unit shipments will slow more than market expectations. This is premised on a trifecta of factors, including continued Windows 10 upgrades, accelerating SSD adoption and new form factors.

Related Link: As Intel Lifts Guidance, Argus Raises Price Target To $45

iPhone Lends Support In Partnership Arena

Baird also sees support emerging from iPhone, as it believes that Intel will retain its market share position in the iPhone 8. This, according to the firm, will help the company to tide over mobile losses in 2018. Baird stated that the partnership with Apple will eventually lead to a foundry partnership in a few years.

Raising Estimates

The brokerage raised its 2016 earnings estimate for Intel to $2.05 per share from $2 per share and the 2017 estimate to $2.45 per share from $2.42 per share. This follows close on heels of the company raising its third-quarter revenue estimate to $15.3 billion to $15.9 billion from $14.4 billion to $15.4 billion previously, citing inventory replenishment in the PC supply chain and signs of improvement in PC demand.

Intel also raised its non-GAAP gross margin guidance to 63 percent from 62 percent, while R&D and MG&A guidance was upped to $5.2 billion from $5.1 billion and tax rate raised to 22 percent from 21 percent.

Price Target Revised

Baird raised its price target for Intel's shares to $42 from $40, while maintaining its rating at Outperform. The revised price target is based on the company's shares trading at 15 to 16 times P/E multiple of its 2018 GAAP earnings per share, which is below the company's historical P/E ratio of 18 times.

At time of writing, Intel was trading at $37.88, up 0.56 percent.

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