Wednesday, October 30, 2013

Does Intel Have Upside Potential?

With shares of Intel Corporation (NASDAQ:INTC) trading at around $24.07, is INTC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock's Movement

Intel was late to the smartphone and tablet party. This has left a lot of upside potential on the table. However, while the stock hasn't skyrocketed like many other stocks throughout the broader market over the past several years, it has more than held its own. This is in addition to an impressive 3.70 percent yield.

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The big question on everyone's mind is whether new CEO Brian Krzanich can improve the company's potential, which would then increase the stock's potential. He's a 3o-year Intel veteran, so he certainly knows the business well. He has a reputation for making fast decisions. Whether this will be a positive or a negative as CEO remains to be seen. In an email sent to employees, Krzanich stated:

"As your CEO, I am committed to making quick, informed decisions. I am committed to being bolder, moving faster, and accepting that this means changes will be made knowing that we will listen, learn and then make adjustments in order to keep pace with a rapidly changing industry."

One of his goals is to be more responsive to smartphone and tablet customers. He also created a New Devices Group in order to increase the odds of growing market share in future mobile technologies.

Intel is currently trading at 12 times earnings while the industry average is 62 times earnings. Margins are solid, and cash flow is good. It has also been rumored that Intel's Atom chip will be in the next generation of Samsung's Galaxy tablet. And analysts like (don't love) the stock: 17 Buy, 23 Hold, 7 Sell.

On the other hand, there were revenue and earnings setbacks in 2012 as well as in the last quarter on a year-over-year and sequential basis. Intel also lacks resiliency in bear markets.

Now let's get to some numbers. Below is a chart focusing on Intel's basic fundamentals.

Trailing P/E 12.03
Forward P/E 11.86
Profit Margin 19.45%
ROE 21.06%
Operating Cash Flow 20.20B
Dividend Yield 3.70%
Short Position 4.70%

Let's take a look at some more important numbers prior to forming an opinion on this stock.

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T = Technicals Are Strong

Intel has performed well year-to-date, but the market isn't reacting well to Bernake's recent hawkish comments, and Intel isn't a resilient stock.

1 Month Year-To-Date 1 Year 3 Year
INTC 4.91% 17.66% -5.01% 26.26%

At $24.07, Intel is trading above its averages.

50-Day SMA 23.10
200-Day SMA 21.51
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E = Equity to Debt Ratio In Normal

The debt-to-equity ratio for Intel is close to the industry average of 0.30.

Debt-To-Equity Cash Long-Term Debt
INTC 0.26 17.16B 13.35B

E = Earnings Have Been Inconsistent

Earnings and revenue has been inconsistent on an annual basis.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 37,586 35,127 43,623 53,999 53,341
Diluted EPS ($) 0.92 0.77 2.05 2.39 2.13

When we look at the last quarter on a year-over-year basis, we see a decline in revenue and earnings. Revenue and earning have both declined on a sequential basis. It's difficulty to be optimistic when such conditions exist.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 12,906 13,501 13,457 13,477 12,580
Diluted EPS ($) 0.53 0.54 0.58 0.48 0.40

Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?


Intel has performed well year-to-date, but has essentially gone nowhere for a decade. This hasn't been terrible for those looking for dividends.

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