For some background, Intel is the world’s largest semiconductor chip maker, based on revenue. The company designs and manufactures computing and communications components, such as microprocessors, chipsets, motherboards, and wireless and wired connectivity products. The company focuses on optimizing the overall performance of its products by improving energy efficiency, seamless connectivity to the Internet, and security features. Here are six points to consider when looking into Intel as an investment opportunity.
Valuation: Intel’s trailing metrics do not have a clear bias towards under or overvaluation of the stock. The metrics do lean towards undervaluation. Intel’s current P/S ratio is 2.5 and it has averaged 2.9 over the past 5 years with a high of 4.1 and a low of 2.2. Intel’s current P/B ratio is 2.8 and it has averaged 2.7 over the past 5 years with a high of 3.7 and a low of 2.1. Intel’s current P/E ratio is 10.6 and it has averaged 19.4 over the past 5 years with a high of 47.7 and a low of 9.3.
Price Target: The consensus price target for the analysts who follow Intel is $27. That is upside of 17% from Intel’s current stock price. That is a bit low compared to usual analyst price targets.
Forward Valuation: Intel is trading 10.2x FY12 EPS. This is in the high end of the range that other tech giants trade at. Cisco is trading 10.1x, Microsoft is trading for 9.4x, Intel is trading at 9.8x, IBM is trading for 12.1x, Dell is trading for 7.4x, and Hewlett-Packard is trading at 6.2x. The average forward P/E ratio for the six tech stocks is 9.2. Intel’s closest competitor, AMD, trades 8.9x FY12 EPS.
Shareholder Friendly: Intel has been very busy returning capital to shareholders. From 2006-2010, the company repurchased $11.9 billion worth of stock, net of share issuances for options and other purposes. Just in the first 9 months of this year, Intel has already repurchased $10.2 billion worth of stock, shrinking the shares outstanding by 468.8 million. The company also pays a $0.21/share quarterly dividend which is a yield of 3.5%.
For some historical perspective, since the company's stock buyback program began in 1990 and through the end of the first quarter of 2011, Intel repurchased approximately 3.6 billion shares at a cost of approximately $74 billion. Intel began paying a cash dividend in 1992 and has paid out approximately $22 billion to its shareholders in dividends.
Recent Developments: The company has been experiencing some challenges. On December 12, Intel announced that the company’s fourth-quarter results are expected to be below the company’s previous outlook due to hard disk drive supply shortages. The company now expects fourth-quarter revenue to be $13.7 billion, plus or minus $300 million, on both a GAAP and non-GAAP basis, lower than the previous expectation of $14.7 billion, plus or minus $500 million.
The company noted that sales of personal computers are expected to be up sequentially in the fourth quarter. However, the worldwide PC supply chain is reducing inventories and microprocessor purchases as a result of hard disk drive supply shortages. The company expects hard disk drive supply shortages to continue into the first quarter, followed by a rebuilding of microprocessor inventories as supplies of hard disk drives recover during the first half of 2012.
Price Action: Intel has been on a roll this year, bouncing off the $19 support twice this year, on the way to making new 52 week highs. The stock is now 4% off 52 week highs and it just above the 50 day moving average support.
Conclusion: It seems like none of the valuations or the recent development suggest that this is a good opportunity to go long so I would stay on the sidelines. The valuations are not too extreme to go short either, though. At a better price, Intel would look attractive. (source http://seekingalpha.com ) For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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