Intel (INTC) is a strong company that has endured the test of time in the tech sector. Over the past 10 years Intel has had little growth and has been dismissed as an investment prospect by some investors. In my opinion these investors are missing out. Intel consistently fluctuates between the low $20s to the high $20s. In fact it has fluctuated within this range over 5 times in the past 10 years. Let's look at the numbers to see if this trend will change.
With a low P/E relative to the market and industry, Intel appears to be undervalued. I would consider this to be discounted at least 5 to 10%.
Payout ratio: 41%
A dividend that has been stable and with a good payout ratio, indicates that this can be a pure dividend play.
Next Earnings date: 16-Apr-13
Short % of float: 3.90%
The short percentage is relatively small and does not indicate that there are any significant headwinds for the company.
Current Price: $20.25 (as of EOD Feb 21 2013)
50-day Moving Average: $21.27
200-day Moving Average: $22.10
The stock price has recently crossed the 50 day moving average. The floor for the stock price should be around $20. It is possible to see a $19 floor, where at this price point a strong buy would be indicated.
Total industry capital expenditure is estimated to be $ 52 Billion (Gartner) and Intel has committed approximately $12 Billion to CAPEX. Each semiconductor factory costs Intel approximately $ 4 Billion. The increased capacity has allowed Intel to provide foundry services to third parties. Currently, Cisco (CSCO) is working with Intel to fabricate chips. Intel has stated that they will only develop chips for non-competing third parties. This clearly is an effort to increase top line revenues in the future.
It is important note that many semiconductor companies outsource the fabrication to foundries, due to the large amount of capital required.
Revenue (million US$)
Timing is everything in the stock market. Well not everything but it's important. But we do need a catalyst to affect Intel's stock price.
CEO Paul Otellini is retiring and Intel's Board of Directors are in a search for a new CEO. Some analysts have short listed internal staff members. Software chief Renee James, COO Brian Krzanich and CFO Stacy Smith have been mentioned.
Last week the executive search firm Spencer Stuart was hired to begin the search for a new CEO outside the company. An outside CEO would be the first in Intel's nearly 50 year history. While it is likely the new CEO will still come from within, it is refreshing that the board of directors is doing its due diligence for the company and its shareholders.
The announcement of a new CEO closer to May and the crowning of the new leader will be a catalyst for the stock price to move. This may occur at the next earnings date of April 16. While it is unknown exactly how the street will respond, there appears to be more upside than downside with the current metrics mentioned before.
When the stock has fallen below $20 in the past decade, the price has never remained below this threshold for an extended period of time. This leads to a reasonable expectation that a 10% gain in the stock price is foreseeable. Currently there are no major issues with Intel that would cause this not to be the case.
There has been a lot of discussion surrounding semiconductor devices made for the PC platform lately. I cannot see this to be an insurmountable issue for Intel. It is true that the PC market is changing; yet, there still will be a need for semiconductor devices. New technologies are being invented by Intel on a continuous basis (thunderbolt, 3D tri-gate transistors, etc. …)
The stock has started to behave as a utility stock with a high dividend currently yielding 4.3%. With such a low stock price, the downside is somewhat protected while a nice dividend is collected. With the combination of the dividend and stock price appreciation, a return of 15% for the year would be a reasonable expectation. Possibly the reason for the recent depreciation in the stock price, is due to investors looking for larger rates of returns in this market, leaving Intel undervalued.