INTC – INTEL CORP:
It is one of the the world’s largest and highest-valued semiconductor chip producers. Intel supplies microprocessors for computer system manufacturers, produces motherboard chipsets, network interface controllers, integrated circuits, flash memory, graphics chips, embedded processors and other devices related to communications and computing.
Intel breaks itself down into the following segments:
– Client Computing Group – produces hardware used in desktop and notebook computers
– Data Center Group – produces hardware used in server, network, and storage platforms
– Internet of Things Group – offers platforms designed for retail, transportation, industrial, buildings and home use
– Non-Volatile Memory Solutions Group – manufactures NAND flash memory and 3D XPoint, branded as Optane, products primarily used in solid-state drives.
– Intel Security Group – produces software, particularly security, and antivirus software.
– Programmable Solutions Group – manufactures programmable semiconductors.
The YoY growth of these segments can be found here.
Strengths:
– Intel’s core business has broad exposure to growing market segments, particularly: cloud, data, artificial intelligence and the Internet of Things.
– The company is successfully migrating from a PC-centric business to a data-centric business
– Intel stock is very cheap right now (P/E 8.9 November 2020), this could potentially lower the risk profile and boost rewards potential.
– They have been very strategic with their previous acquisitions.
– As we will see when we look at the financials, their books up to the start of 2020 are solid.
Risks:
– INTC is immersed in a semiconductor market that, while having stronger long-term growth potential, is highly cyclical. Big up years are followed by big down years. This is just the result of supply/demand cycles in the market.
– Intel is gradually losing market share to Advanced Micro Devices (NASDAQ:AMD), NVIDIA (NASDAQ: NVDA), and other competitors. (NOTE: AMD & NVIDIA will not be discussed here, this post is for INTC)***
– Litigations. This is common for corporations this size. For intel it is mostly antitrust lawsuits.
***Interesting note about AMD in the next section.
FINANCIAL HISTORY:
Something that was really interesting is, after going through a bit of Intel’s 10K I got curious and checked out AMD as well. Right in the very beginning AMD has this as their disclaimer:
Intel Corporation’s dominance of the microprocessor market and its aggressive business practices may limit our ability to compete effectively.
Intel Corporation has been the market share leader for microprocessors for many years. Intel’s market share, margins and significant financial resources enable it to market its products aggressively, to target our customers and our channel partners with special incentives and to influence customers who do business with us. These aggressive activities have in the past and are likely in the future to result in lower unit sales and a lower average selling price for many of our products and adversely affect our margins and profitability.
That really says a lot about the stength Intel Corp has in this market. Incase anyone is curious, here is the source. Risk Factors, page 13.
Anyways let’s look into the financials over the last 10 years.
| Year | Revenue | EBITDA | Debt | Debt / Earning |
|---|---|---|---|---|
| 2011 | $53,999 | $23,571 | $10,800 | 0.5 |
| 2013 | $52,708 | $20,323 | $16,418 | 0.8 |
| 2015 | $55,355 | $22,713 | $25,511 | 1.05 |
| 2017 | $62,761 | $26,179 | $34,673 | 1.3 |
| 2019 | $71,965 | $32,861 | $33,285 | 1.0 |
The revenue has increased an average of 3% YoY, the earnings has increase right along side this. Best has increased gradually, nearly x3 over the 10 years, but it is still only 1x the earnings. Very healthy, especially when we jump into this next section and talk about the cash flow.
| Year | Cash Flow from Operations | Capital Expenditures | FCF/E Ratio |
|---|---|---|---|
| 2011 | 20,960 | 10,764 | 15,370 |
| 2015 | 19,020 | 7,326 | 21,168 |
| 2019 | 33,145 | 16,213 | 17,697 |
Cash flow from operations has increased about 5% YoY over the decade, their CAPEX has increased by an average of 5% as well. $33 Billion in cash flow is pretty crazy, especially considering they still have half of that left over after Capital Expenditures. They have been using the excess cash flow to pay down some debt (~750 Million in 2019), dividend out, and buy back shares. Over the decade the outstanding shares have decreased by 2% YoY from 5,256 to 4,417.
What is crazy is that Intel is trading at about an 8x multiplier. Their P/E puts them in a nice range for this to be a very strong value play as well, especially considering they are already well established in a sector that is growing rapidly.
WHAT ARE THEIR PLANS FOR THE FUTURE?
Intel’s intentions are to establish a lead in key technologies that are fundamentally changing computing and communications today and for tomorrow.
Their priority areas for continued growth:
- Cloud Services
- IoT (Internet of Things)
- Artificial Intelligence
- Intel is acquiring SigOpt to Scale AI Productivity (October 2020)
- 5G
- Intelligent Edge
- Autonomous Driving Technology
How they intend to deploy their capital:
- Investing into R&D to strengthen their competitive position.
- Strategically invest/acquire companies to stimulate data-centric growth.
- Return cash to shareholders through dividends and stock buybacks.
CURRENT DIVIDEND HISTORY:
Intel Corp has only had 6 years of Continuous Dividend Growth at this time.
NOTE: Current for November 2020 and very likely to change.
| Current Annual Payout / Share | $1.32 |
|---|---|
| Yield | 2.81% (Based on $47.01 Price Nov 2020) |
| 10 Yr Div Growth Rate | – |
| 3 Yr Div Growth Rate | 7% |
| 1 Yr Div Growth Rate | 6.6% |
| Current EPS Payout Ratio | 24.26% |
From a dividend growth standpoint, the payout is very low, however their growth is extremely promising given the low payout of only 24.26%, and the fact that this company produces gobs of free cash flow.
Let’s project what the Annual Dividend Payout could be using a 7% constant growth rate. (NOTE: Just an estimate, not a guarantee of what could happen)
| Year | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Payout | $1.41 | $1.51 | $1.61 | $1.73 | $1.85 |
CLOSING THOUGHTS:
At its current price, with the strong financials, and overall excellent business growth prospects, this stock would best be considered a really strong value play. The dividend is there and there is very strong potential for growth, however the payout is still a bit low. Now for a very long term hold, this could be an excellent entrance price, especially if they were to start increasing the dividend growth rate as they increased their cash flow.
I hope everyone found this post interesting, please supplement this with your own research. There are always more risks that need to be considered, additionally it is always smart to read opposing views, don’t just read what will validate what you want to believe about a stock.
The poll (It can be found here) will be closing out soon, so the 2nd place and last place will have their reviews written as time allows. There were some requesting a review for Realty Income (O), it will be done likely after the other 2 or whenever, evaluating REITs is a bit of a different process due to their required 90% payouts.
As always, thanks for reading, and have a good day/night!
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.