The Ax: Kurlak, Unable to Beat Intel Bulls, Joins 'em
By Eric Moskowitz
Staff Reporter
12/23/98 12:14 PM ET
The war over Intel (INTC:Nasdaq) is over.
Perennial Institutional Investor all-star Thomas Kurlak of Merrill Lynch this morning raised his near- and long-term ratings on Intel to accumulate from neutral before the open. He also raised his 12-month price target to 144 and his 1999 EPS estimate to $4.25 a share from $3.60. Intel shares were up 5 3/4, or 4%, to 124 13/16.
Since August 1997, Kurlak had been the prominent bear on Intel; he had maintained his stance even after the stock jumped 53%, to 120 from 78, over the 10 weeks ended Tuesday.
"Our concerns on several key issues ... have been allayed by steps management is taking on cost reductions," Kurlak wrote sheepishly in a report Wednesday. "Accordingly, we have concluded that our conservative earnings estimate is too low."
Quite a retreat from his defiant stance of just two weeks ago, when Kurlak entertained a different opinion of semiconductor stocks: "We are probably at the apex of seasonal consumer demand right now. It seems to us to be foolhardy to buy most semiconductor stocks."
His yearlong stubbornness on Intel allowed fellow semiconductor analyst Mark Edelstone of Morgan Stanley to take the mantle of Intel ax. But finally Kurlak seems to have come to the realization that he may have been wrong. After all, Edelstone has had a strong buy on Intel since April. (Morgan Stanley has participated in an underwriting of Intel put options in the last three years.)
"Kurlak obviously missed the boat on this one," says Jeff Maxick, director of research with Chicago-based Madison Securities. "But there are a lot of things continuing to go the company's way right now." Maxick points to three key factors: The company is doing a better job of keeping costs down, the PC sector is doing better than expected this holiday season, and chip prices are rising after a long decline. In the past quarter, Intel has twice alerted investors that earnings would beat expectations, which is quite unusual for a company that has so conservatively guided analysts in the past.
Kurlak wasn't immediately available for comment, but he said in the report that he sees only a moderate decline in PC average selling prices next year, along with 22% chip unit growth. Kurlak also suggests that earnings may exceed his $1.03-a-share forecast for Intel's fourth quarter. Most significantly for 1999, his contacts also tell him that orders for the first quarter "remain strong." (Merrill Lynch has done no recent underwriting on Intel.)
Edelstone, who Friday made more positive comments on Intel, raised his earnings estimates to $1.12 a share for the fourth quarter and $4.60 a share for 1999. The company earned 98 cents in its year-ago fourth quarter and $3.87 for fiscal 1997.
"It's pretty amazing that the dominant player on Intel for so long gets a little bullish after the stock rallies almost 50 points," says Joel Kraut, a trader in the Intel options pit who doesn't have a position in the stock. "I would take it as a sign that we were near a top if there wasn't so much good news coming out of Intel lately -- my guess is that it will still go higher."
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