Intel Corp.’s dividend cut helped earn the stock an upgrade Thursday, as Morgan Stanley now sees “limited downside” for the beaten-down name.

Morgan Stanley’s Joseph Moore bumped his rating on Intel’s stock up to equal weight from underweight Thursday, writing that while Intel’s INTC, +0.55% move to slash the dividend may lead to “some incremental selling in the coming weeks” due to the thresholds that some income funds may have, the decision gets a “negative catalyst out of the way.”

Moore also cited the stock’s “material underperformance” so far this year. Shares are off 3% to start 2023, while the PHLX Semiconductor Index SOX, +3.33% is up 16%.

See more: Intel cuts dividend by 66% in ‘inevitable’ move that was once ‘unthinkable’

In Moore’s view, Intel’s prior dividend yield of about 6% “kept dividend investors involved unsustainably,” whereas the new yield of about 2% “is both more in-line with the peer group and more supportive of the company’s multi-year capital-spending strategy” as the company plans hefty foundry spending going forward.

“We have long said that we would prefer to see Intel as a value stock with optionality for a turnaround in the core business, but that the ramp of fixed costs created too much risk for cash-flow degradation,” Moore wrote. The company’s plans to cut the dividend and other costs signal “a management team that is now working to return to a more disciplined approach with regards to capital management and allocation.”

Moore added that he expects Intel’s business to come under additional pressure, but he sees “value here that should shield further downside.”

Opinion: Intel’s cash position leads it to cut dividend

He declined to take a more optimistic stance, however, noting that he also deems there to be “limited upside” for Intel shares as the company faces several years ahead of high capital spending, while it could also take years for some of the company’s newer business initiatives to gain real traction.

Intel shares are up 0.4% in Thursday morning trading. They’ve lost 43% over the past 12 months as the S&P 500 index SPX, +0.53% has declined 6%.

Source: finance.yahoo.com