Why Intersil Corp. Shares Could Plunge 10%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Intersil  sank more than 2% today after Needham downgraded the circuit manufacturer from buy to hold.

So what: Along with the downgrade, analyst Vernon Essi Jr. reiterated his price target of $14, representing about 10% worth of downside to yesterday's close. So while momentum traders might be attracted to Intersil's price strength over the past year, Essi's call could reflect a sense on Wall Street that the company's valuation is becoming a bit stretched.

Now what: According to Needham, Intersil's risk/reward trade-off isn't too appealing at this point. "Despite our belief that Q2 is shaping up well and mgmt is only in the middle innings of overall efficiency post turnaround, we believe ISIL's share price has gotten ahead of itself and our $14 PT, reflecting this near-term optimism," said Essi. "Prior to today's downgrade, we had a Buy rating on ISIL for roughly a year. While we believe potential upside to EPS exists with tighter OPEX and possible revenue upside, in our view the valuation remains relatively rich under these scenarios." With the stock now off its 52-week high and boasting a still-juicy 3%-plus dividend yield, however, those short-term concerns might provide patient Fools with a solid long-term income opportunity. 

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The article Why Intersil Corp. Shares Could Plunge 10% originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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