Wedbush: Intel Still A Buy After Altera Merger

In a report published Tuesday, Wedbush analyst Betsy Van Hees reiterated an Outperform rating and $37 price target on Intel Corporation (NASDAQ: INTC). The company announced the signing of a definitive agreement for the acquisition of Altera Corporation (NASDAQ: ALTR).

Intel has entered into an agreement to acquire Altera at $54 per share in cash or a total of approximately $16.5 billion. Intel expects to close the acquisition within six to nine months and to finance the transaction through a combination of new debt and cash on hand.

"INTC expects the transaction to enable new classes of high customizable and integrated solutions combining ALTR's FPGA solutions with INTC's processors targeting the data center and Internet of Things (IoT) markets," Van Hees said.

Intel expects the new class of products to lead to product synergies that would contribute 60 percent of the value created via the acquisition, while the remaining 40 percent is expected to come from cost synergies from opex and improvements in manufacturing. Intel expects the deal to be accretive within the first year of the transaction being completed.

According to the Wedbush report, "The transaction has been unanimously approved by INTC and ALTR's Boards of Directors, but is still subject to certain regulatory approvals and customary closing conditions including approval by ALTR's shareholders. Unlike the spree of financial engineering M&A that has been rampant in semis, ALTR will be an INTC business unit."

The analyst believes that the market underestimates the long-term growth that this acquisition can drive for Intel, especially outside PCs, as well as long-term gross margin sustainability and cost synergies. Therefore, the analyst believes that the recent weakness in Intel's share price offers an attractive investment opportunity.