Is Intel really an ‘un-ownable’ Stock?

Bernstein analysts reversed a late March upgrade of Intel Corporation (NASDAQ: INTC) and caught some by surprise by now stating the stock is “un-ownable.”

What happened at Intel?

Intel sent shockwaves across the investment community Thursday when the company said what few if any investors could have imagined. The company’s 50-year history of manufacturing its own technology and products could come to an end as it faces a major setback with its 7nm node.

Intel CEO Bob Swan said in conjunction with an earnings conference call with analysts it discovered a “defect mode” in its 7nm process. Management now has a set of “contingency plans,” including outsourcing production to third-party foundries.

Instead of a 2022 launch of its 7nm server CPU, the public will need to wait until 2023. 

Needless to say, Wall Street was not pleased with the announcement and investors sent the stock tumbling lower by 15% on Friday. And perhaps for good reason as the company’s reputation of production issues further calls into question its ability to remain competitive over the long-term.

Top-ranked analyst turns bear

Bernstein analyst Stacy Rasgon is considered the top chip analyst on Wall Street. While she was neutral on the stock just a few months ago, she told CNBC on Friday that Intel’s stock is “now un-ownable.”

What’s notable about Rasgon’s comments is she told CNBC it is uncommon to shift stances on a stock immediately following an earnings release and conference call. But after listening to Thursday’s earnings call, it is evident that it was “the worst we have seen in our career covering the company.” Perhaps a one-time exception is warranted.

What this former bull has to say

Cerity Partners’ Jim Lebenthal praised Intel’s margins in early July, noting its overall business is growing as overall computing grows. On Friday, he acknowledged his comments “are absolutely true” –rather were true until the past 24 hours showed evidence the company is “screwing up operationally.”

Intel’s problems with its 10nm production were “painful to go through” and Lebenthal says he now wants out of Intel’s stock — just not on Friday as a 15% decline is an overreaction. A more reasonable decline would be in the 5% range as the company still has “enviable” margins that management acknowledged will now be a bit lower.

The case for further downside in Intel’s stock is difficult to justify as shares are now trading at around 10 times earnings with minimal debt on the balance sheet, he said.

“I will take my chances that I get out of it in the mid-50s,” he said. “But one thing is for sure… I’m tired of these conversations and I don’t want to have them anymore.”