Judy, CharterCraft stuff is interesting. The new buy on Intel could coincide with a possible upgrade from Kurlak? Funny how TA can do that, huh?
The Ax: Merrill's Kurlak Softens Intel's Outlook
By Marcy Burstiner
Staff Reporter
11/16/98 6:34 PM ET
SAN FRANCISCO -- The influential Merrill Lynch semiconductor analyst Thomas Kurlak says he is human, after all.
The respected analyst admitted Monday he's missed the boat the past two months on Intel (INTC:Nasdaq). "We missed the run-up in the stock, but there are worse things than that," he said in a telephone interview. "But I don't think we want to do anything rash. This happens on Wall Street. You aren't going to get them all right."
On the face of it, Kurlak is hardly budging. He has been cautioning against buying Intel for some two years, and is still sticking to his neutral rating. (He could hardly recommend buying the stock now, since Intel is trading at a 52-week high.) But looking between the lines shows that he has made a strategic shift.
Just two days prior to Intel's analyst meeting on Friday, Kurlak was forecasting an earnings per share estimate for 1999 of $3.60. "The present bounce back in PC demand may look compelling," he said Nov. 11. "However, the Intel story eventually has to come back to the pricing-vs.-unit-growth issue. We fear ASP [average selling price] will continue falling long term as low-end PCs predominate, thus holding Intel's revenue growth to a modest level."
Today, Kurlak released another report in which he keeps his neutral rating, but now says Intel's ability to cuts manufacturing costs may offset expected pricing pressures. "Accordingly, we expect that our 1999 $3.60 a share earnings estimate is conservative," he says, raising his 1999 estimate by 10 cents a share, or 2.8% to $3.70 a share.
Critics will gleefully say that Kurlak is a day late and a dollar short. Make that quite a few dollars.
Because Kurlak is so respected, many investors have been waiting for his green light to buy. But those who followed his advice have lost out in the past six weeks. Even as Kurlak said hold on, the stock soared 35% since Oct. 8.
That surprised even Intel bulls. Ted Bridges, portfolio manager of the $1.3 billion Bridges Investment Counsel, has been long Intel for years. And while he respects Kurlak's advice, he added to his position in September and October and now owns a total of about 150,000 shares. "It has surprised me how quickly we've gone from $75 to $105," he says.
Still, Bridges isn't ready to say Kurlak has gone cold. "Obviously, he has had a really good track record on the stock. It is hard to go against him," Bridges says. "His long-term take has been pretty good. But clearly he has overstated the negative side of the case. My sense is, as a stock picker, he hasn't been great."
But what the bears (Kurlak included) seem to downplay, Bridges says, are Intel's strengths: sheer market share dominance, the talent of its designers and engineers and its ability to spend huge amounts of money in research and development. It is those strengths that Intel's management team clearly showed at its analysts meeting.
Kurlak said he was impressed to hear how strong Celeron chip sales have been, and that was a good thing, if it means new buyers. But if people are buying Celeron instead of higher margin products, that isn't good for Intel's future. "Our view is it will displace [other products] because it has very good price performance," he said. Much will depend, he added, on how cost conscious consumers are. "The jury is still out on that question," he said.
Although he allows that cost reductions can't be sustained over the long term, they certainly can help over the next six to nine months and so. In the near future, Kurlak sees Intel's profitability improving. And even as he says to proceed with caution, he admits Merrill could change its forecast any day now. "We could or we couldn't," he said. "We are getting new information everyday."
Be prepared. |
