I have analyzed Intel's financial statements to determine whether the reported figures suggest that the company's shares are a good value and reasonable risk for prudent investors. The way I performed this analysis was inspired by Benjamin Graham's recommendations in "The Intelligent Investor," which was first published in 1949 and is still one of the best-known books about value investing. I modified Graham's specific suggestions to fit modern times; however, the goal is the same: find stocks that are inexpensive relative to the company's strengths and aren't excessively risky.
The analysis evaluates investment suitability by gauging how well the company satisfies seven criteria. GREEN, YELLOW, and RED grades indicate whether each gauge is fully satisfied, partially satisfied, or not satisfied at all. An Overall Score between zero and 100, which takes the details of all gauges into account, is also computed. While the analysis includes both growth and value criteria, the calculation is weighted to favor companies that exhibit good value characteristics over firms that are fast growers but expensive.
An Overall Score of 60 or higher is a good result, and it signifies that the company has enough value-investment appeal to be worth examining in more detail. "
First, a quick review of the company itself.
Intel makes semiconductor chips used in computers, servers, and many other devices. Once the clear leader of its industry, the rapid growth of mobile phones benefited competing firms that did a better job producing chips that required less electrical power, a key consideration. Intel has also lost market share because of delays manufacturing new generations of chips. These and other factors forced Intel to consider other opportunities. Intel acquired Altera Corp, a maker of programmable logic devices, in 2015, and Mobileye, which developed technology for autonomous driving, in 2017. The Intel Security Group (ISecG) was divested in April 2017. Intel then divested most of its smartphone modem business in December 2019. More recently, Intel agreed to sell its NAND memory and storage business to SK hynix for $9 billion.
Intel recorded profits of $22 billion on revenue of $78 billion during the last year. In the quarter that ended on 26 September 2020, Intel earned $1.11 per share (excluding certain items), which matched the $1.11 Wall Street consensus forecast. See https://tinyurl.com/y3hw3vb7 for Intel's most recent quarterly report.
Shares of Intel now trade for about $46 each. These shares can be found in the Dow Jones Industrial Average, Standard and Poors 500, Standard and Poors 100, NASDAQ 100, and Russell 1000 stock indices.
Analysis Results:
Intel's grades on the seven investment criteria are listed below, along with some of the financial figures that influenced these color assignments
1. The Company's Size is Substantial: GREEN
Market Value: $192.0 billion (mega-cap)
2. The Company is Conservatively Financed: RED
Current ratio = 1.7 (>2.0 is conservative)
Long-term debt/Working Capital = 246% (<150% is conservative)
3. The Company Generates Stable Earnings: GREEN
Nineteen positive quarterly earnings reports in last 5 years (almost perfect)
Earnings variability = 8% (modest)
4. The Company Exhibits Earnings Growth: GREEN
Owner Earnings growth rate (trailing year) = 29% (very good)
Owner Earnings growth rate (five-year average) = 14% (good)
Free Cash Flow growth rate (trailing year) = 38% (very good)
Free Cash Flow growth rate (five-year average) = 16% (good)
5. The Company is Efficiently Profitable: GREEN
Cash Flow Return On Invested Capital = 33% (very good)
Operating Profit/Sales = 31.9% (excellent)
6. The Company Pays a Healthy Dividend: GREEN
Dividends paid for the last 7 years or longer
Dividend 5-year average growth rate = 7% (fair)
Dividend = 28% of last year's FCF (easily sustainable with room to grow)
7. The Company's Shares are Fairly Valued: GREEN
Price/Owner Earnings (last year) = 10.8 (appealing)
Price/GAAP Earnings (five-year average) = 13.0 (appealing)
Free Cash Flow/Market Value = 10.6% (very appealing), more than the five-year average of 6.7%)
Acquirer's Multiple = 8.4 (inexpensive)
Price/Book Value = 2.6 (less expensive than the five-year average of 2.9)
Price/Sales = 2.5 (less expensive than the five-year average of 3.1)
In summary, the analysis assigned Intel six GREEN, zero YELLOW, and one RED grades. The resulting Overall Score is 79 of the 100 possible points, which is an excellent result. The score is above the 60-point threshold, and, therefore, Intel merits consideration by value investors.
Check back here occasionally for updates to the Overall Score, which can change when the company releases new financial results and when there's a significant change in the company's share price.
This analysis reported here is not, by any means, a complete evaluation of the subject company, and it does not consider all material facts about the company's operations, finances, or future prospects. The analysis relies on publicly available financial data assumed, but not guaranteed, to be accurate. Readers are encouraged to independently verify all data. Other analytical approaches and screening criteria will be more applicable to investors having different goals, circumstances, and tolerance for investment risk. The analysis is not and should not be considered investment advice, nor does it constitute an offer or solicitation to buy or sell any security. The author might have a long or short position in the subject company and/or its competitors. The methodology and results are subject to change without notification.
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