I have analyzed Intel's financial statements to determine whether the company's shares can be considered a good value and reasonable risk for prudent investors. My analytical approach 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 uses gauges to assess how well the company satisfies seven specific investment criteria. GREEN, YELLOW, and RED grades indicate whether the criteria are fully satisfied, partially satisfied, or not satisfied. An Overall Score between zero and 100, which takes all gauges into account, is also computed. While the analysis includes both growth and value criteria, the Overall Score calculation by design favors companies with good value characteristics over fast-growing, but expensive firms. An Overall Score above 60 signifies the company is worth examining in more detail; a score over 80 is a rare accomplishment.
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 consumed less electrical power, a key consideration. Intel has also lost market share because of delays manufacturing new generations of chips. For example, Apple replaced chips from Intel with faster, lower-power devices it designed itself. When the price of Intel's shares dropped in 2020, Third Point, a hedge fund, got involved and advocated for changes. They got their way, at least in part, when Intel announced in January 2021 that its Chief Executive Officer would be replaced by Pat Gelsinger, who was CEO of VMWare and had previously worked at Intel. Even before external pressure to act, Intel had been selling or divesting businesses (e.g., smartphone modems, NAND devices) that it no longer wanted to compete in.
Intel recorded profits of $21 billion on revenue of $78 billion during the last year. In the quarter that ended on December 26, 2020, Intel earned $1.52 per share (excluding certain items), which significantly beat the $1.11 Wall Street consensus forecast. See Intel's most recent quarterly report.
Shares of Intel now trade for about $62 each, giving the company a market value of $255 billion. 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: $254.6 billion (mega-cap)
2. The Company is Conservatively Financed: YELLOW
Current ratio = 1.9 (>2.0 is conservative)
Long-term debt/Working Capital = 151% (<150% is conservative)
3. The Company Generates Stable Earnings: GREEN
Nineteen positive quarterly earnings reports in last 5 years (almost perfect)
Earnings variability = 1% (negligible)
4. The Company Exhibits Earnings Growth: GREEN
Owner Earnings growth rate (trailing year) = 21% (very good)
Owner Earnings growth rate (five-year average) = 23% (very good)
Free Cash Flow growth rate (trailing year) = 25% (very good)
Free Cash Flow growth rate (five-year average) = 17% (good)
5. The Company is Efficiently Profitable: GREEN
Cash Flow Return On Invested Capital = 32% (very good)
Operating Profit/Sales = 30.7% (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 = 26% of last year's FCF (easily sustainable with room to grow)
7. The Company's Shares are Fairly Valued: YELLOW
Price/Owner Earnings (last year) = 14.9 (appealing)
Price/GAAP Earnings (five-year average) = 16.9 (moderate to pricey)
Free Cash Flow/Market Value = 8.3% (appealing, more than the five-year average of 6.8%)
Acquirer's Multiple = 11.2 (inexpensive)
Price/Book Value = 3.1 (more expensive than the five-year average of 2.9)
Price/Sales = 3.3 (about the same as its five-year average)
In summary, the analysis assigned Intel Corporation five GREEN, two YELLOW, and zero RED grades. The resulting Overall Score is 69 of the 100 possible points, which is a very good result. The score is above the 60-point GCFR threshold, and, therefore, Intel is worthy of deeper investment research.
This analysis reported here is a limited evaluation of the subject company. 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 and consistent. Readers are strongly encouraged to verify all data and perform their own independent analyses. Other analytical approaches and screening criteria will be more applicable to investors having different goals, circumstances, and tolerance for investment risk. This post 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 analytical approach, the criteria used, and all calculations are subject to change without notification.
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#intel #intc #gauges #gcfr #gcfr2 #valueinvesting #nac_financialanalysis
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