Is Intel gearing up for activist investor? Analysts say what to do with the stock

According to a CNBC report last week, Intel (NASDAQ:INTC ) has enlisted the help of advisors, including Morgan Stanley, to prepare for potential challenges from activist investors, as CEO Pat Gelsinger works to revitalize the struggling chipmaker.

Although Intel has dealt with activist investors in the past, there is no indication of a new campaign at this time, the report states, and it remains uncertain whether an activist investor has approached the company’s board.

“I guess when your stock is down 57% YTD, peers have seen their market caps surge, you stop paying a dividend, and you continually find new ways to disappoint investors, you start looking over your shoulder,” Bernstein analysts commented on the report.

Although Intel is no stranger to cooperating with an activist shareholder, the question that arises is what will an activist do to help Intel stage a turnaround, analysts noted.

“Given that Intel has already slashed costs and cut headcount, I don’t see cost-cutting as a clear activist focus,” they continued, given that the company has already reduced expenses and workforce under CEO Pat Gelsinger.

They also doubt that a capital return strategy would be feasible, as Intel has halted dividend payments and lacks the flexibility to repurchase stock. The analysts acknowledge that spinning off Intel's loss-making manufacturing business could improve value but note that this move might face resistance from governments and private equity partners involved in Intel's manufacturing expansion.

On the other hand, the analysts suggest that improving investor communication could be a key area where an activist might have an impact.

They highlight that Intel has repeatedly set expectations too high, leading to investor disappointment. Better communication could help stabilize the stock and set clear markers for progress as the company navigates a challenging period, which some estimate could last another six or more quarters.

“At the same time, Intel can remind investors that CPUs are not going away (even if they are losing share to AMD (NASDAQ:AMD ) in servers and overall CPUs may be losing share to GPUs),” analysts noted.

“While it’s not the most exciting activist angle, it could at least help to potentially put a floor in the stock and provide some markers to watch for progress."

As for what to do with the stock, Bernstein suggests INTC’s downside may be limited, but the path to a substantial turnaround remains unclear and unlikely to materialize soon as the company faces challenges in achieving aggressive targets, remains behind competitors like TSMC, and lacks strong momentum in key areas like AI and its CPU segment.

Source: Investing.com