In the post-PC world, has Intel an eye on the future?
Key Stats for Intel Corporation
| Ticker | INTC |
|---|---|
| Sector | Other Semiconductors |
| Latest price | $36.34 |
| Value | $171,125M |
| Daily vol | $566M |
| Date | 06 June 2017 |
| Links | Yahoo Finance, SEC Edgar, www.intel.com |
1. What do thay do?
Semiconductor chips. mainly!
If you are under 30 you may have missed the Intel Inside logos that came with every PC in the 80s and 90s. There was an axis called Wintel where Microsoft and Intel dominated, Microsoft Windows was the software, Intel the semi-conductors, and some "dumb" manufacturer put it all together into a box... then the smartphone hit.
Has it hurt them? Hardly from a cashflow perspective, though it has killed off growth.
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| Revenue | $59bn | $55bn | $56bn | $53bn | $53bn |
| EPS | $2.12 | $2.33 | $2.31 | $1.89 | $2.13 |
When they describe their business, there are six exciting division names: Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, the Security Group, Programmable Solutions Group, and the New Technology Group. But the business is still driven by the old chips for PCs, etc business (55% of sales) and the data center / communications unit (29% of sales) with none of the other 4 divisions clocking more than 5% of sales.
But having missed the smartphone race, which was won by ARM, Intel is now betting big on autonomous cars. In April they agreed to spend $15bn to buy Mobileye, a "global leader in the development of computer vision and machine learning, data analysis, localization and mapping for advanced driver assistance systems and autonomous driving."
Will it work? Hard to tell. And Google, Tesla, Uber and a rake more folks are also playing in this space.
But let's look at the forecasts 2 years out, we can see they are starting to pick up!
| Metric | 2016A | 2017E | 2018E |
|---|---|---|---|
| Revenue | $59bn | $60bn | $62bn |
| EPS | $2.12 | $2.86 | $2.97 |
And if you are worried about INTC spending $15bn on Mobileye, note they currently have only $8bn of net debt, i.e. 0.4x it's latest operating profit. Plus they are selling their Security unit for $4bn. So it's balance sheet isn't stressed post deal. Therefore I can't see any reason to doubt their ability to keep paying nice divies and keep on buying back stock.
2. How do they compare?
Compared to the old enemy AMD they continue to dominate, in sales, margins and returns... but that's missing the point, as the semiconductor world has moved on.
Versus the rest of the sector their margins look reasonable, but clearly they aren't best in class.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| Intel Corporation | $60,481M | 39% | 18% |
| Advanced Micro Devices, Inc. | $4,424M | -7% | N/A |
| Broadcom Ltd | $15,608M | 30% | -15% |
| NVIDIA Corporation | $7,542M | 32% | 38% |
| Taiwan Semiconductor Mfg. Co. Ltd. (ADR) | $32,534M | 64% | 26% |
| Texas Instruments Incorporated | $13,764M | 46% | 38% |
| Micron Technology, Inc. | $14,733M | 32% | 5% |
| Analog Devices, Inc. | $4,006M | 35% | 11% |
| Skyworks Solutions Inc | $3,353M | 41% | 25% |
But the margin doesn't seem to be the factor to watch... it's the fear of low growth. They are the only single-digit grower in the pack.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| INTC.O | $171,125M | 13x | 8% | 3% | 13% |
| AMD.O | $10,622M | 144x | N/A | 0% | -3% |
| AVGO.O | $101,228M | 16x | N/A | 2% | 3% |
| NVDA.O | $88,066M | 48x | 12% | 0% | 3% |
| TSM | $182,724M | 16x | 10% | 3% | 13% |
| TXN.O | $81,584M | 21x | 10% | 2% | 8% |
| MU.O | $34,528M | 7x | N/A | 0% | 12% |
| ADI.O | $28,902M | 18x | 16% | 2% | 7% |
| SWKS.O | $19,956M | 17x | 16% | 1% | 7% |
Can INTC re-ignite their cash-flows? Maintain the cashflows in the legacy business, and find new engines of growth?
3. What's Wall Street thinks?
Despite INTC under performing the S&P for the last few years, the brokers still like the stock and say Buy. Though their price target at $40 is only 10% above the current price.
Back in February management outlined a 3 year plan that focuses on efficiency, growth, better capital allocation and shareholder returns. All sensible stuff. So it's surprising that Wall Street isn't more excited, surely?
Note: the stock's traded between 11 and 16 times forecast earnings over the last year, so it's not feeling toppy at the moment. And management haven't missed earnings in over 3 years.
4. Inside Intel?
How often is a cash cow, like Intel trading on 13x times? A cashcow where management has one eye on the next big thing, autonomous cars, and the other eye of increasing shareholder returns.
To me it seems like Wall Street isn't cutting them any slack. And unloved quality stocks are ones that tempt me! Sure, it may take 2 years for the success / failure to crystalize... but if I wait, surely I'll miss it?
View the archive of Stock a Day posts at r/stockaday.
Disclosure:
I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare is a Chartered Financial Analyst.
Submitted June 06, 2017 at 11:09AM by shane_stockflare http://ift.tt/2sA5apN
