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Morgan Stanley upgraded Intel (NASDAQ:INTC) shares to Equal Weight from Underweight as analysts believe yesterday’s dividend cut was “the right thing to do.” Intel also reaffirmed its 1Q23 guidance, which the analysts believe is not surprising as they believe the Q1 guidance is likely a bottom.
Intel decided to slash its dividend by two-thirds in a bid to save cash. Instead of paying 36.5c in quarterly dividends, Intel has now committed to paying 12.5c. The decision “reflects the board’s deliberate approach to capital allocation and is designed to best position the company to create long-term value,” Intel said in a statement.
“The improved financial flexibility will support the critical investments needed to execute Intel’s transformation during this period of macroeconomic uncertainty.”
Morgan Stanley analysts believe such a move will put a stop to speculation about dividend reduction with Intel shares likely to benefit as this negative catalyst is now out of the way.
“We see balanced risk reward, and upgrade to EW… While this event may put selling pressure on the stock near term, the decision derisks several factors that have kept us UW,” the analysts wrote in an upgrade note.
“From our standpoint, paying a dividend at all – even the remaining $0.50/share – is counterproductive, given an ambitious and highly capital-intensive strategy to return to growth across a wide variety of businesses,” they added.
Morgan Stanley’s new price target of $28 per share signals an upside potential of about 10% relative to yesterday’s closing price.
Intel stock price is trading 1.8% higher in premarket Thursday.
