Does Intel Have Upside Potential?
With shares of Intel Corporation (NASDAQ:INTC) trading at around $24.07, is INTC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Intel was late to the smartphone and tablet party. This has left a lot of upside potential on the table. However, while the stock hasn’t skyrocketed like many other stocks throughout the broader market over the past several years, it has more than held its own. This is in addition to an impressive 3.70 percent yield.
The big question on everyone’s mind is whether new CEO Brian Krzanich can improve the company’s potential, which would then increase the stock’s potential. He’s a 3o-year Intel veteran, so he certainly knows the business well. He has a reputation for making fast decisions. Whether this will be a positive or a negative as CEO remains to be seen. In an email sent to employees, Krzanich stated:
“As your CEO, I am committed to making quick, informed decisions. I am committed to being bolder, moving faster, and accepting that this means changes will be made knowing that we will listen, learn and then make adjustments in order to keep pace with a rapidly changing industry.”
One of his goals is to be more responsive to smartphone and tablet customers. He also created a New Devices Group in order to increase the odds of growing market share in future mobile technologies.
Intel is currently trading at 12 times earnings while the industry average is 62 times earnings. Margins are solid, and cash flow is good. It has also been rumored that Intel’s Atom chip will be in the next generation of Samsung’s Galaxy tablet. And analysts like (don’t love) the stock: 17 Buy, 23 Hold, 7 Sell.
On the other hand, there were revenue and earnings setbacks in 2012 as well as in the last quarter on a year-over-year and sequential basis. Intel also lacks resiliency in bear markets.
Now let’s get to some numbers. Below is a chart focusing on Intel’s basic fundamentals.
|Operating Cash Flow||20.20B|
Let’s take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
Intel has performed well year-to-date, but the market isn’t reacting well to Bernake’s recent hawkish comments, and Intel isn’t a resilient stock.
|1 Month||Year-To-Date||1 Year||3 Year|
At $24.07, Intel is trading above its averages.
E = Equity to Debt Ratio In Normal
The debt-to-equity ratio for Intel is close to the industry average of 0.30.
E = Earnings Have Been Inconsistent
Earnings and revenue has been inconsistent on an annual basis.
|Revenue ($) in millions||37,586||35,127||43,623||53,999||53,341|
|Diluted EPS ($)||0.92||0.77||2.05||2.39||2.13|
When we look at the last quarter on a year-over-year basis, we see a decline in revenue and earnings. Revenue and earning have both declined on a sequential basis. It’s difficulty to be optimistic when such conditions exist.
|Quarter||Mar. 31, 2012||Jun. 30, 2012||Sep. 30, 2012||Dec. 31, 2012||Mar. 31, 2013|
|Revenue ($) in millions||12,906||13,501||13,457||13,477||12,580|
|Diluted EPS ($)||0.53||0.54||0.58||0.48||0.40|
Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
Intel has performed well year-to-date, but has essentially gone nowhere for a decade. This hasn’t been terrible for those looking for dividends.
Looking ahead, we simply don’t know how the Intel situation will unfold with a new CEO in place. Considering leadership is arguably the most important factor when attempting to determine the future direction of a company, it would be unwise to rate with any conviction at this point in time.
Intel is a WAIT AND SEE.
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All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock. I’m currently short technology, financials, the Russel1 2000, and the euro.