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Intel (NASDAQ:INTC) is set to release its 1st-quarter results on April 16, at 2:00 pm PT. Below I have outlined its current position as well as why I believe its current valuation offers investors great future returns.

Profile

Intel has a market cap of $108 billion and currently trades for $21.83 per share. Shares are up 7% YTD but trade 23% below their 52-week high of $28.42. Analysts currently have a mean price target of $22.94 and median price target of $23.00 on shares of INTC; 41 analysts have an average estimate EPS of $0.41 for the first quarter on average estimated revenues of $12.67 billion. Intel has beat earnings estimates in the last four quarters.

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Why Intel is a BUY

  • Dividend yield of 4.13%.
  • P/E of 10.3, P/B of 2.1 and P/S of 2.1 are all currently below the market averages 24.1, 2.6 and 2.4 respectively.
  • Operating margins of 27.4% and net margins of 20.6% are both above the industry averages 22.7% and 17.1% respectively.
  • History of buybacks. Intel repurchased $5.11 billion shares last year after repurchasing $14.34 billion the year before. INTC's current buyback plan allows for an additional $5.3 billion in 2013, which I believe has a strong possibility of being increased (for more on INTC buybacks, I have written another article you can access here).
  • Large moat. Close competitors Advanced Micro Devices (NYSE:AMD) and ARM (NASDAQ:ARMH) pale in comparison to the size of Intel and its over $10 billion research budget.
  • In addition to building its own chips, Intel has revenue streams from providing manufacturing services to others companies, as evidenced by its recent deal with Altera (NASDAQ:ALTR).
  • While a switch to tablets from the PC have hindered Intel's growth recently, the reliance of tablets on the cloud will require more servers and infrastructure, which could provide significant long-term growth for Intel's server processor segment.
  • Lots of cash. At the end of 2012, Intel had $12.5 billion in cash and short-term investments (and only $13.5 billion in debt).

Bottom Line

Short-term focus and Intel's connection with the declining PC market has dropped the price of Intel substantially this year. Current valuation, Intel's scale and growth prospects in the server and manufacturing space offers everything necessary for a turnaround. I believe the declining PC market is fully priced in, an earnings miss and subsequent drop in share price would only offer an even better entry point for new investors.

Source: Buy Intel Before Shares Take Off: Highlights And Earnings Estimates