Intel (INTC) Fundamental Review

Intel (INTC) was one of the golden stocks of the 90s tech boom, so much of a golden stock that the first thing you notice when you look at their share price chart you would notice that they have not yet surpassed their all time high in 2000. Along with others such as Cisco, INTC was one of the hype stocks of the dot com bubble.

So what can we learn from INTC share price graph? I see it as a warning to other current hype stocks that fundamentals really matter over the long term, and this is what we are starting to see with INTC.

Many consider INTC in the same way that Mircosoft was in 2010/11. But is it done growing, are rivals going to take over. Everyone seems to love AMD a lot more than INTC despite the former only posting $9.76bn compared to INTC’s $77.86bn. INTC is and will for some time continue to be the worlds largest semiconductor chip manufacturer.

Fundamentals

Lets take a look at the fundamental date of INTC:

Market Cap$219.32bn
P/E12.02
Revenue 2020$77.861bn
Revenue 2017$62.761bn
Profit Margin 202026.83%
Profit Margin 201715.30%
Shares Outstanding 20204.232bn
Shares Outstanding 20174.835bn
Total Assets$153.091bn
Total Liabilities$72.053bn
Current Assets$47.249bn
Current Liabilities$24.754bn
Free Cash Flow 2020$20.931bn
Free Cash Flow 2017$10.332bn
Price / Free Cash Flow10.47

Looking at the the fundamental data above, my first thought is why is this stock not worth more? It has good growth in revenue and free cash flow, and shares outstanding are decreasing. At a 10.47 P/FCF I would regard INTC as cheap and a potential good buy at the moment.

INTC’s balance sheet is strong with a total assets to liabilities ratio of 2.12, meaning that INTC has twice the number of assets to its liabilities. Its current ratio stands at 1.90, therefore there is no concern that INTC cannot meet its short term debt obligations

As already stated above, INTC is currently trading at low multiples. With a P/E of 12.02 this is well below its rivals AMD, IBM and Nvidia which are trading at 40, 24 and 93 P/Es respectfully. It is also only valued at 10 times its free cash flow. Considering that a good P/FCF is usually around 15 to 20, INTC is well bellow that. This is important because when you are investing into a stock, you are buying their ability to produce future cash flow.

INTC is a dividend payer which pays an average yield of 2.57% which equates to $1.39 per share. In 2020 INTC spent $5.568bn on dividends to shareholders, but when compared to free cash flow this only gives a payout ratio of 26.6%. Furthermore, with shares outstanding decreasing, over time you would be owning a larger proportion of the company therefore potential capital gains.

Graphs

Below you will find the share price graphs for INTC. The first is year to date while the second is all time.

You will clearly see from the all time graph the effect the dot com bubble had on INTC stock. In 2000 it reached an all time high of $72.94, which it has not since been able to reach. The highest the stock price has reached recently is $68.26.

Year to date INTC is up 8.84% but down 14.2% from its recent high in April 2021. Over the last 3 years INTC has been ranging between the $40s and $60s price marks and is expected to continue to do so for the next year. Therefore, this presents good opportunities for swing traders who could make a healthy profit 40-50% swing from low to high. Long term, however, INTC is expected to grow at a steady rate based on its fundamentals.

Final Thoughts and Valuation

INTC is compared to AMD and Nvidia as they are probably its closest rivals. At the moment they are more favoured than INTC as they are posting higher growth rates and doing well in chip innovation. INTC by the virtue of how large it is, will be unable to grow at similar levels. That said it is still going to grow.

Through 2022 and into 2023 there isn’t expected to be much growth due to processing delays meaning that it may loose market share to AMD and Nvidia. That said INTC announced that Amazon Web Services has become a customer of its foundry services packaging solutions; and a partnership has been made with Qualcomm in a silicon manufacturing process said to be a step change beyond current INTC tech.

If the new CEO Patrick Gelsinger, who started his career with INTC in 1979 and became the senior VP Digital Enterprise Group, can turn around the processing issues there is no reason why INTC cannot grow to new highs. Currently Simply Wall Street values INTC at $61.16, over the next 18 months I would expect the share price to go no higher than the $68 mark. However, long term I would not be surprised if the share price reached $80.

None of the content in this article should be considered financial advice, I am not a financial adviser and you should always do your own research prior to investing. These are my opinions only.

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