Intel Corporation (NASDAQ:INTC) designs and manufactures integrated digital technology platforms consisting of microprocessor and chipset which are primarily sold to original equipment manufacturers, original design manufacturers, and industrial and communications equipment manufacturers in the computing and communications industries. On July 17, 2013, the company reported second-quarter earnings of $0.39 per share, which missed the consensus of analysts' estimates by $0.01. The stock is up 1.58% excluding dividends (up 5.37% including dividends), and is losing to the S&P 500, which has gained 16.3% in the same time frame. With all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying shares of the company right now for the technology sector of a dividend growth investor's portfolio.
Intel currently trades at a trailing 12-month P/E ratio of 12.83, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 12.07 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.97 per share and I'd consider the stock inexpensive until about $29. The 1-year PEG ratio (2.47), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 5.19%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Intel pays a dividend of 3.79% with a payout ratio of 48.6% of trailing 12-month earnings (or 96.3% of free cash flow) while sporting return on assets, equity and investment values of 11.6%, 18.5% and 16.7%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.79% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 9 years with a 5-year dividend growth rate of 14.1%.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around near overbought territory with a value of 66.82 with upward trajectory, which is a bullish pattern that's getting tired. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is above the red line with the divergence bars increasing in height, indicating the stock has upward momentum. As for the stock price itself ($23.74), it is up against resistance right now and I would look at $22.86 to act as support for a risk/reward ratio, which plays out to be -3.7% to 0%.
- Credit Suisse raised its price target on the company from $30 from $28 stating accelerating Data Center Group growth will help boost the bottom line.
- Jeffries upgraded the stock to "buy" stating the company offers one of the best alpha generation opportunities in the semiconductor industry.
- The company will lay off 700 workers in Hudson, Massachusetts by the end of 2014 due to a plant shutdown. The plant will operate near capacity till then to fill existing orders and build inventories of chips that the company will discontinue following the closing.
Intel is inexpensively valued based on future earnings and expensive on future growth prospects (one-year outlook). Financially, the dividend payout ratio is middle of the road based on trailing 12-month earnings and I don't doubt management will be able to continue to increase the dividend going forward (which I believe will be on the next ex-dividend date of around early November); based on future earnings the dividend payout ratio goes down to around 45.7% (if the dividend is kept steady). The technical situation of how the stock is currently trading is telling me we might be seeing some downward pressure in the immediate future. The inexpensive valuation, double digit dividend growth rate potential and long-term bullish possibilities (as you can see from the technicals chart the stock bounced off the 200-day moving average) are what I like about the company. Personally I'm not going to initiate a position right here because I believe I can get it at a cheaper price very soon and there isn't great earnings growth projected for now, but kudos to you if you already own the stock, it is a great one.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!