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Intel Corp. shares were up 2.6% in Tuesday trading after the chipmaker won praise for its plans to take its Mobileye self-driving unit public.
Intel
INTC,
bought Mobileye in 2017 and will now be sending the company off to the public markets again—but in a different way. The company announced late Monday that it planned to launch an initial public offering for Mobileye in 2022, though Intel will hang onto a majority stake in the company.
Retaining that majority ownership is key for Intel, according to some analysts, since Mobileye will remain consolidated for the purposes of Intel’s financial statements.
“The company has put out a 10-12% five-year growth target that on the surface appears quite challenging, and if they are going to hit that double-digit growth trajectory it makes sense to keep things in the portfolio that are actually growing double digits,” wrote Bernstein analyst Stacy Rasgon, who has an underperform rating on Intel’s stock and a $40 price target.
Rasgon added that a Mobileye IPO could “obviously” help Intel unlock sum-of-the-parts value. “An opportunity to monetize and yield SOTP value from one of the few parts of the business with a legitimate case for growth is certainly not nonsensical,” he wrote.
He further commented on a Wall Street Journal report, which broke the news of Intel’s plans and indicated that an IPO could value Mobileye at upwards of $50 billion. Such a valuation “would be about a quarter of Intel’s entire market capitalization today, for a segment that makes up about 2% of revenues and operating profits,” Rasgon wrote.
While Rasgon is not sure what Mobileye is worth, he said that it’s “probably fair to argue that Mobileye is likely worth more than the ~$15 billion Intel paid for it in 2017.”
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Wells Fargo analyst Aaron Rakers also thought that Intel’s planned move seems to make sense for a number of reasons. “In addition to unlocking Intel shareholder value, we believe IPO proceeds can assist with what looks likely to be a capital intensive 2023 rollout,” he wrote, while maintaining an equal-weight rating and $60 price target.
Wedbush analyst Matt Bryson argued that “the market is correct in interpreting this news positively for Intel,” though he has questions about the possibility of a $50 billion valuation for Mobileye, and he doubts that the transaction will change Intel’s overall narrative.
“We do struggle somewhat to understand why Mobileye will/should command
a $50B valuation,” Bryson wrote. Based on 2021 and 2022 estimates for Mobileye, such a valuation would come at multiples of 36 times forward sales and 30 times forward sales, respectively.
“In comparison Intel paid roughly 21X in 2017 in a transaction that was at a premium to Mobileye’s market value,” he wrote. “Moreover, we’d expect Mobileye’s position as a subsidiary to INTC would weigh somewhat on how its valued for investors.” Bryson has an underperform rating and $45 price target on Intel shares.
Shares of Intel are down 2.5% over the past three months, as the Dow Jones Industrial Average
DJIA,
has gained 1.8%.
