Intel (INTC) is the world's largest semiconductor chipmaker according to revenue. Intel designs, develops and manufactures computing and communications micro components. It also develops computing platforms for integrated hardware and software computing technologies that are intended to provide optimized solutions to personal users and large enterprises.
Intel aims to be the leading computing solutions company that powers the global digital economy. The company is shedding its primary focus on design and production of semiconductor chips to make way for a company that delivers comprehensive solutions through hardware and software platforms and auxiliary devices. Intel was incorporated in California in 1968 and reincorporated in Delaware in 1989.
Intel's steady growth was attributed to the solid desktop and laptop sales in the recent decade. However, Intel failed to grip Google's (GOOG) Android devices and Apple's (AAPL) iPad to expand in the face of the tech explosion. Recently, Intel has been promoting Ultrabooks, a new super-thin category of laptops using Intel processors that are quite similar to Apple's MacBook Air. It asserts to combine the best of both worlds -- tablets and laptops. Intel predicts Ultrabooks to gain 40% of the PC market by the end of the next fiscal year.
Intel's CEO Paul Otellini suggested and promoted that it's not so crazy for Apple to partner with Intel in the future. "Our job is to ensure our silicon is so compelling, in terms of running the Mac better or being a better iPad device, that as they make those decisions they can't ignore us," Otellini said.
Intel is overhauling the supply chain process to make up for its competitors' biggest nightmares. A recent acquisition of wireless chipmaker Infineon could give Intel an edge in offering integrated mobile platform solutions. Since the acquisition, Intel has shipped 500 million wireless chipsets. More recently, Intel had an interesting acquisition of Idesia Biometrics. Intel will pay for the biometrics startup whose main product allows personal computers, mobile phones, and gadgets to recognize users by their unique heartbeats.
Stock Valuation Metrics
Over the past 12 months, Intel returned an average of 14.5% in the midst of an overall economic weakness. Intel surprisingly sustains stable market position despite its solid semiconductor background and cutthroat competition in the technology industry. While Intel is slowly unfolding to be a more diversified and integrated technology company, it is a highly defensive and more or less predictable stock. There are three reasons why Intel is an essential stock on your dividend portfolio.
Click to enlarge images.
First, Intel stock is significantly undervalued. It is estimated to grow in revenue by 6.5%, EBITDA by 6.4%, and EPS by 5.9% at a stable, two-year CAGR over the current and next fiscal years. Intel microprocessors are present in virtually all PCs and mobile devices in the world. Intel grabs 80% market share in the semiconductor industry. With this huge potential for growth, Intel remains to be highly discounted at $26.2 current stock price.
Second, Intel is a generous dividend machine. It is uncommon for a technology company to pay hearty and steady dividends, but Intel is an exception. Intel has a strong payout ratio of 33.02%. This rate has the capacity to sustain and grow given its solid dividend yield at 3.21%.
Third, Intel has a dependable cash flow. It maintains low debt relative to its high level of assets. It has a profit margin of 21.2% and operating margin of 31.7%. Intel maintains substantial cash flow at $19.92 billion and $6.37 billion, operating cash flow, and levered free cash flow, respectively. Intel seems quite cheap for its size with a P/E ratio of 11.1, and a forward P/E ratio of 9.8. Moreover, its Relative Strength Index is at 45% currently. Based on its numbers, Intel has a B Grade O-Metrix score of 6.67. (For more information on O-Metrix calculations, please click here.)
Intel's capacity for growth has been met and surpassed. Intel commands a healthy ROI and ROE at 24.15% and 26.61%, respectively. Intel's effort to streamline the supply chain is benefiting the company as reflected in its 4.6 times inventory turnover; 14.3 times receivable turnover; 0.8 times total assets turnover; and 2.4 times fixed assets turnover.
Intel sustains low debt and high equity. Intel is able to meet long-term obligations as evidenced by its debt to equity ratio of 0.2 and its liabilities to assets ratio of 34.9. Intel maintains fit credit standing as revealed by a 2.10 current and 1.50 quick ratio in the recent 12 months.
Intel is one of the major players of the semiconductor industry for a long time. However, Intel's strong association to PC and laptop manufacturers is in danger of becoming immaterial. The ever evolving mobile and tablet niche is pushing organizations to the brink of innovation or destruction. Intel maintains tough competition with QualComm (QCOM), Nvidia (NVDA), Advanced Micro Devices (AMD), and Texas Instruments (TXN) on its outlook on integrated software and hardware solutions.
Intel's inability to gain traction with top mobile and tablet manufacturers such as Google and Apple exposes it to market switching and consumer bargaining. However, Intel is a highly cyclical company that is totally capable of breaking to new highs. What makes Intel unique in its industry is that the management is quite friendly to shareholders, as it keeps pushing the dividend higher.
Intel maintains large capitalization compared to its direct competitors. In terms of total revenue, Intel also holds the top spot at $54.1 billion in the past 12 months. It has a positive EPS at 2.36 compared to Advanced Micro's -0.84 and Texas Instruments' 1.55. Intel is also consistently high powered and highly efficient. This brand is always associated with quality and superb performance. Intel is a large stock with a huge potential for wealth and staying power. It just has to refocus and reorient its operations to a more relevant and strategic future.
There are many reasons to load up on shares of Intel. Good management and steady income are just part of it. Intel's strong ties to PC and mobile lifted it up to great heights. Intel has to move forward to gain momentum and win over its already prodigious market. Intel's financial performance is resilient and reliable. The company outruns its rivals by growing revenues regularly, as well as earnings. It is a powerful dividend stock and a dependable value-added investment. Therefore, I recommend going long on Intel and enjoying profits in a broad time.