With Intel (NASDAQ:INTC) announcing a major shakeup in management and trading near 52-week lows, is the blue-chip member a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
A = A-Level Management Runs the Company?
The management picture at Intel just became one huge question mark. The world’s largest semiconductor company’s chief executive officer Paul Otellini has decided to leave in May. It was a surprising development as the company typically communicates its succession plans far in advance.
“Paul Otellini has been a very strong leader, only the fifth CEO in the company’s great 45-year history, and one who has managed the company through challenging times and market transitions,” said Andy Bryant, chairman of the board, in a press statement. “The board is grateful for his innumerable contributions to the company and his distinguished tenure as CEO over the last eight years.” Otellini, who is 62 years old, took over at the helm in 2005, and was expected to stay until Intel’s mandatory retirement age of 65. His replacement has not been named yet.
Although the board gave a kind goodbye to Otellini, shareholders are less likely to feel the same. Shares of Intel are down 17 percent year-to-date, and have dropped almost 25 percent over the past five years. On the positive, under Otellini’s tenure as CEO, Intel has made $23.5 billion in dividend payments and generated cash from operations of $107 billion.
E = Earnings Are Increasing Quarter over Quarter?
Intel has been consistently beating estimates, but earnings have been on a roller coaster ride over the past several years. In the most recent quarter, the company reported earnings of $3.0 billion (58 cents per share), or 60 cents per share on a non-GAAP basis. It beat analysts’ estimates by 10 cents per share, but it was still a decline from last year’s 69 cents per share (non-GAAP). With the exception of the third quarter, earnings for Intel have been declining quarter-over-quarter since last year.
“Our third-quarter results reflected a continuing tough economic environment,” said Otellini, in the third quarter earnings release. “The world of computing is in the midst of a period of breakthrough innovation and creativity. As we look to the fourth quarter, we’re pleased with the continued progress in Ultrabooks and phones and excited about the range of Intel-based tablets coming to market.”
T = Technicals on the Stock Chart are Strong?
While Intel may be excited about its progress, Mr. Market has been disappointed with its lack of success in mobile devices, especially compared to the likes of ARM Holdings (NASDAQ:ARMH) or Qualcomm (NASDAQ:QCOM).
As the chart below shows, shares of Intel have been stuck in a downward spiral since peaking out at $29 in early May. On Monday, November 19th, Intel shares managed to close relatively flat, but the blue-chip was still one of the worst performers in the index. Furthermore, shares are well below their 50-day and 200-day moving averages, typically a bearish sign. In the past, shares have found support between $17 and $19, but even a retest of $17 represents 15 percent to the downside.
Although Intel has a dividend of 4.50 percent and a management shakeup that could be positive over the coming years, it is simply too early to jump on board. The company has failed to capitalize on the growing gadget market by companies such as Apple (NASDAQ:AAPL), Samsung, Amazon.com (NASDAQ:AMZN) and Google (NASDAQ:GOOG). Meanwhile, the PC-industry continues to show signs of weakness.
Gartner, a leading information technology research company, announced in October that worldwide PC shipments totaled 87.5 million units in the third quarter, representing an 8.3 percent decline from a year earlier. IDC, another research firm, also showed that shipments fell more than 8 percent in the most recent three month period. It is the largest drop for the industry since at least 2001.
Taking into account the components of our CHEAT SHEET investing framework, we find that Intel is a STAY AWAY until shares can stabilize and the company increases its exposure to non-PC products.
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