Intel CEO is Forced to Resign: How to Proceed with the Stock
On June 21, 2018, the world learned the shocking news that Intel Corp.* (INTC – yield 2.3%) CEO Brian Krzanich was required to step down from his position at Intel due to a relationship with an employee that violated company policy.
This is, frankly, horrendous news. The company apparently has no succession plan in place, and no easily-identifiable CEO candidate from within the company.
Intel shareholders need to understand that they no longer own shares in the same company that the owned on June 20. In that light, you need to decide whether you still want to own the stock. You might be thinking, “Intel is a great company. A CEO change couldn’t possibly harm the company!”
Oh really? I have just two words for you: General Electric.
Here’s some data that can help you formulate a decision on how to handle your INTC shares:
- The stock traded sideways from July 2016 through September 2017. It then rose about 58%, from 36 to 57, peaking in June 2018. To be clear, the stock rose an exorbitant amount in just nine months. Everybody who owns it is thrilled with the capital appreciation. Most of them will have no regrets if this week’s news causes them to “take the money and run”. Therefore, you can expect selling pressure on the share price.
- Earnings growth is slowing down. Wall Street expects earnings per share to grow 14.2% in 2018, but just 4.3% in 2019. Slowing earnings growth is always a warning sign, because it means that growth investors are likely to sell in favor of other companies with double-digit earnings growth. After all, over the longer-term, share price appreciation is closely correlated to earnings growth. That’s why earnings growth projections are the very first piece of data that I review when deciding whether to buy or sell a stock.
- There is a possibility that Mr. Krzanich could be scooped up by a competitor, or that he could launch a new company. Such actions could make inroads in duplicating or improving upon Intel’s products and future plans. In a new role, Mr. Krzanich could hire key personnel away from Intel.
If I owned this stock, I would sell it in favor of a company with stronger earnings growth. I think shareholders need to take the CEO news seriously, and be prepared to protect your invested capital from a drop in the share price, either by selling today, or by using a stop-loss order. It was already unreasonable to expect the stock to continue advancing after it just rose 58% in 9 months. The resignation of Mr. Krzanich pretty much puts a nail in the coffin of the share price for the time being.
*Intel is not part of the Cabot Undervalued Stocks Advisor portfolios.