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Here’s why Intel stock’s rally is sustainable despite 26% YTD gains

Here's why Intel stock's rally is sustainable despite 26% YTD gains

Intel’s (NYSE: INTC) stock price has built a strong upside momentum since the beginning of this year on the back of surprise growth in PC-centric revenue and a lower than expected decline from the data center group.

The sentiments are further optimized by the reports that Intel’s closest competitor Advanced Micro Devices (NASDAQ: AMD), has lost market share in PC and other key markets due to supply constraints.  

Investors have also applauded the arrival of new chief executive officer Pat Gelsinger, who stated Intel has the potential to manage a majority of its 2023 products.

Intel stock performance. Finviz chart. See more stocks here.

Is it time to capitalize on Intel stock gains?

Despite a significant upside momentum in 2021, Intel’s stock price has the potential to sustain the recent gains and accelerate the upside momentum into the days ahead. This is because fundamental factors instead of speculations fully back Intel’s stock price rally.

The company has generated $20 billion in fourth-quarter revenue, beating analysts’ expectations by $2.5 billion and capping off the fifth straight year of record revenue. Its full-year revenue hit a record $77 billion levels, up 8% from the previous year.

Moreover, the company’s strong cash flow conversion ratio enhances its potential to generate additional growth through acquisitions and spend more money on share buybacks and dividends.

Intel has generated a record $35 billion in operating cash flows in 2020. It repurchased $14 billion of common stock in 2020. Share buybacks always positively impact the share price performance, earnings per share, and dividends.  

What’s more, the company says strong PC-centric revenue growth momentum will extend into 2021, thanks to strong demand for notebooks and other devices. Intel expects first-quarter revenue in the range of $18.6 billion compared to the Wall Street consensus for $16.4 billion.

Cowen analyst Matthew Ramsey sets a $79 price target for Intel stock, representing a strong upside from the current $63 level.  

“Strong beat/raise as PC strength carries into 2021. More important than numbers, incoming CEO Pat Gelsinger emphasized a renewed focus on Intel’s historical strength, with a majority of 2023 products to be internally manufactured based on stronger 7nm progress,” Matthew Ramsey said.

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