Credit Suisse Group Analyst John Pitzer says Intel Corporation (INTC) is one of his top stock picks, even though PCs are one of the end markets he does not like at the moment. But, he says Intel is actually more dominant in the data center space than they are in the PC market.
“They are about 92% of the PC market, but they’re close to 94%, 95% of the server market, and this data center business is about 20% to 25% of revenue but is now approaching 50% to 60% of overall profits for the company,” Pitzer says. “So that is a very profitable business.”
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Pitzer says the data center group alone earns about $1.30 of EPS. He says it has been growing at a 15% topline CAGR, and he says it’s not difficult to model the data center business earning $2 of EPS over the next few years.
“And this is the type of business that if it was standalone, the market would be willing to pay a 15 to 20 multiple on,” he says. “If you put a 15 multiple on $2, you get to $30 stock, and if you put in 20 multiple on $2, you get to $40 stock, and the stock is trading under $30 today. We think that the current valuation does not actually reflect the overall earnings power of the data center group.”
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