Analysts Keep Hiking Intel's Revenue Forecasts and Price Targets - Is INTC Still a Buy?

Revenue forecasts for Intel Corp (INTC) in 2027 continue to rise. Moreover, analysts have been upping their price targets for INTC. With a 9% FCF margin and a 1% FCF yield, INTC appears 17% undervalued. Moreover, one way to play INTC, as this article will show, is to sell short out-of-the-money (OTM) cash-secured puts.

INTC closed at $103.49 on Monday, Aug. 17, after bottoming out at $81.88 on July 29. But it could have more to go. Let's look at that.

Upgraded Revenue and FCF Forecasts

I discussed Intel's valuation in a July 26 Barchart article, “Intel Corp Shows Strong Q2 Results and Free Cash Flow - Shorting INTC Puts is Still the Best Play.”

For example, based on analysts' 2027 $70 billion revenue forecasts, with an 8.5% free cash flow (FCF) margin estimate, I projected Intel could generate $5.95 billion in FCF.

So, dividing this by 1.0% (a typical valuation metric for tech stocks), Intel could be worth $595 billion. That was the same as a $118 per share stock price target.

However, since then, analysts have hiked their 2027 revenue forecasts to $71.22 billion. Moreover, I suspect that the company could easily generate a 10% FCF margin. For example, it made a 27.59% FCF margin in Q2, according to Stock Analysis data.

So, just to be conservative, let's use a 9% 2027 FCF margin forecast:

  $71.22 billion 2027 revenue x 0.09 FCF margin est. = $6.41 billion

Revised Price Targets for INTC

So, applying a 1.0% FCF metric to this, the fair market value (FMV) is $641 billion. That's still 17% over today's market cap of $547 billion, according to Yahoo! Finance.

In other words, the price target is: $103.49 x 1.17, or $121.08 per share

However, that might not be the upper limit. For example, what if Intel generates an average 20% FCF margin by 2027? Just to be conservative, let's lower the valuation metric to 2.0%.

Here is how that would work out:

  $71.22 b x 0.20 = $14.224 billion FCF

  $14.22 b FCF / 0.02 = $712.2 billion fair market value (FMV)

That is 30.2% over today's market value of $547 billion. In other words, the price target would be:

  $103.49 x 1.302 = $134.74 per share

This range between $121 and $134 is similar to what other analysts are forecasting. 

For example, Yahoo! Finance reports that the average price target (PT) from 48 analysts is $114.88, up from $108.62 just three weeks ago, as seen in my prior Barchart article.

Similarly, Barchart's mean PT is now $113.87. However, AnaChart shows that 12 analysts have written about Intel since the earnings release. These revised PTs range between $80 and $160. 

As a result, the average PT is $120 for those who have revised their targets since earnings came out.

The bottom line is that analysts agree that INTC still looks undervalued, despite its recent run-up.

Shorting Cash-Secured Puts as a Conservative Play

Let's assume the worst. What if INTC takes another dip? After all, the stock has been volatile (its IV is 69.5%), and it could falter again.

So, one way to conservatively play INTC is to short cash-secured puts that are at a lower strike price than today's price (i.e., out-of-the-money or OTM).

I discussed this in my last Barchart article. I showed that shorting the $85.00 put option expiring Aug. 28, at the time, the premium received was $5.90, for a 6.94% yield over the next month at a 7.93% lower strike price with a delta ratio of 32%.

Today, that put has fallen to just 25 cents. Hurray! Most of the premium has already been made, so it makes sense to close that put (buy to close) and do it again.

For example, the Sept. 18 expiry INTC put option chain shows that the $95.00 strike price put has a $3.97 midpoint premium. This is a similar distance below the trading price (i.e., -8%) and has a lower delta ratio (-28.9%).

That means a short-seller can make an immediate yield of 4.18% one-month yield (i.e., $397/$9,500 cash collateral posted).

As a result, over the past two months, an investor would have collected almost $1,000 (i.e., net $964) on an average investment collateral of $9,000. That works out to a 10.7% return over two months, or 64% annualized on an expected return (ER) basis.

That is a very high return, without even having to purchase INTC stock. 

Moreover, even if INTC drops to $95.00 by Sept. 18, the investor will have collected $9.64, so their breakeven cost for 100 shares assigned will be $85.36.

That provides 17.5% downside protection from Monday's close (i.e., $85.36/$103.49 -1).

The bottom line is that conservative investors love to take advantage of Intel's high put option premiums by shorting them.