Fretting Activists, Intel Adds a Portfolio Company as an Advisor

* Intel has hired Morgan Stanley to fend off poachers.

* This builds on a strong start to Q3 2024 investment banking activity.

* Current thoughts on our Two rating for MS shares.

In case you missed it over the last few weeks, and as we can see in the chart below, shares of Intel INTC have been a bit of a mess. The company served up dismal June-quarter results and said it would lay off 15% of its workforce as part of a $10 billion cost-reduction plan. Then came a wave of downgrades across Wall Street followed by Moody’s downgrading the company’s senior unsecured ratings to Baa1 from A3 to reflect “expectations for Intel's significantly weaker profitability over the next 12 to 18 months…”

On top of that, we can layer on a bunch of shareholder lawsuits and S&P Global cutting its credit rating for Intel to BBB+ from A-. Pretty horrible developments and ones that suggest continued share loss to Nvidia NVDA, Advanced Micro Devices AMD, Marvell Technology MRVL, and others, including Qualcomm’s QCOM PC efforts.

The drubbing in Intel shares has led the company to hire Morgan Stanley MS and others to shore up its defenses should an activist investor come calling. We see this as bolstering Morgan Stanley’s investment banking business, one that is already benefiting from the continued pick up in M&A and IPO activity. Per data from Ernst & Young, the aggregate value of U.S. merger-and-acquisition deals spiked 42% in July over the prior month. A total of 141 U.S. deals were recorded last month, a 33% increase compared with June putting the value of those deals near $124 billion.

That’s positive for our shares of Bank of America BAC, but especially for our position in Morgan Stanley because of its far stronger position in M&A. During Q2 2024, Morgan Stanley collected the highest percentage of M&A fees (42%) with the silver medal going to Goldman Sachs GS (39%). Also benefiting both BofA and Morgan Stanley was the improving IPO activity and a rebound in U.S. corporate bond issuance during July. With a few days to go until we close out August, we’ll have a better indication of activity during the month in the next few weeks. Our thinking is that with the Fed signaling the start of its rate-cutting cycle, lower rates could add further fuel to that activity, especially ahead of the 2024 presidential election.

We currently rate MS shares a Two but as we’ve discussed the larger stock market is short-term overbought and its P/E multiple stretched. Should we see MS drift lower below $100 and potentially closer to $97, we would look to revisit our rating. We may even be inclined to add a few more shares.

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At the time of publication, TheStreet Pro Portfolio was long MS, BAC, NVDA and MRVL.