INTC--Intel: Down on the news
September 26, 2000 12:00 PM PT
by Stefani Lako Baldwin
OK investors, it's time to break out the thank-you stationary. Here's your address list: JP Morgan, Lehman Brothers, A.G Edwards, Salomon Smith Barney, Morgan Stanley and ABN Amro.
The purpose of the letter?
To say thanks for downgrading Intel (INTC) last Friday. By doing so, these venerable Wall Street firms created quite a bargain-hunting day on Intel stock and others.
But as you write that letter, sit and consider this: Why did so many firms jump so quickly into the downgrade pool?
Black Friday
Let's look at Intel. It closed on Friday at $47.94, down 22 percent, on the news that its third-quarter earnings would be lower than estimated due to a slowdown in European sales.
After making the announcement Thursday night, Intel's share price starting sliding during overnight trading, which bled into the Nasdaq opening. The Nasdaq immediately slid over 200 points in the early morning.
Then the analysts came out. From all corners of Wall Street and beyond, analysts began to downgrade Intel's stock from to "hold" from "buy"; to "market outperform" from "strong buy" and, a personal favorite, to "market underperform" from "strong buy."
Some brokerages did reiterate their "buy" ratings on Intel, but by midday Friday the scale had definitely fallen on the downgrade side.
One brokerage that reiterated its "buy" rating on Intel wrote in a research note Thursday night that it planned to be in the market early buying Intel at a discount. And boy did this firm and other investors buy: more than 200 million shares traded hands on Friday. And why not? At $32.50, the share price was only $15 shy of its 52-week low.
Intel's downside
Intel does have its problems.
The company continues to press analysts on including its income from investments in earnings estimates. In fact, as part of its press release last week, it mentioned that investment income for the third quarter would be greater than expected. Analysts have remained mixed on whether to include investment income. Many say one-time gains have no place in earnings calculations. Others argue that Intel's investment returns have been so consistent as to become credible additions to the bottom line.
Advanced Micro Devices (AMD), a microprocessor competitor, has begun to gain market share. Intel has been hit by recent processor chip recalls. Some say personal computer demand is waning and beginning to hurt the chip sector.
As for the third quarter, well, Intel said quarterly sales growth would hover in the 3 percent to 5 percent range -- a bit far from the expected growth of anywhere from 10 percent to 25 percent. |
