The deal between the United States and chip stock Intel (INTC) has prompted not only its share of controversy, but also deep concern about where the next steps could go. As it turns out, United States Secretary of Commerce Howard Lutnick may have already spilled the tea: the defense industry could be up next. Intel investors, meanwhile, are still reeling from the earlier deal, and shares slid nearly 1.5% in Tuesday afternoon’s trading.
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Lutnick noted that the defense sector could be next in line for a deal similar to the kind the government struck with Intel: cash in exchange for equity. Given that the defense industry produces vital elements of national defense like munitions, the notion of the government taking a direct hand in their equity made a certain amount of sense.
The move is not even completely unprecedented. The United States Army, for example, owns 12 small-caliber ammunition plants, one of which is the Lake City Army Ammunition Plant. But there is a public connection nonetheless; Lake City is operated by a private contractor, Olin Winchester LLC, which is part of Olin Corporation (OLN). And that ticker symbol means it is publicly traded.
Bad Idea, Says Shark Tank’s Kevin O’Leary
Yesterday, we found out that the Wall Street Journal was not in favor of the move for the government to buy Intel shares. And, as it turns out, Shark Tank star, Kevin “Mr. Wonderful” O’Leary, has a problem with it too, declaring the move “abhorrent,” and noting the government should “…stay in its lane.”
While the Wall Street Journal called out potential conflicts of interest, O’Leary instead chose to target Intel more directly, noting that the government should not have given tax dollars “…to a company that has performed so miserably.” O’Leary also noted that the move would serve to remove wedges between private and public sector operations, noting that failing companies should fail, so that their “…protein gets reabsorbed by private equity into the winning management teams.”
Is Intel a Buy, Hold or Sell?
Turning to Wall Street, analysts have a Hold consensus rating on INTC stock based on one Buy, 26 Holds and three Sells assigned in the past three months, as indicated by the graphic below. After an 22.32% rally in its share price over the past year, the average INTC price target of $22.17 per share implies 8.35% downside risk.
