Intel Corporation (INTC)

The Company: Intel Corporation (INTC) is an electronic hardware design and manufacturing company. Although Intel is primarily known for its processors, it has many products in the semiconductor and electrical hardware field such as electrical server products, chipsets, wireless products, memory storage, networking, and etc. For many years it has been the leader in providing processors for computers. Over the past decade, it has been exposed to a handful of competitors in the industry.

Company Mote/Advantages: Intel has a well-established infrastructure from a tangible and intangible asset prospective. For a number of years Intel has been the predominant provider of processors for computers. This allowed them to build a reputation for themselves. Everyone knows of the Intel sticker on their computer. With the variety of products Intel is offering, it reduces the volatility of their revenue, and shows they are willing to adjust to the industry. With their magnitude of cash flow and knowledge base they have the ability to adjust to the industry and introduce new products. With their new CEO, I could see a culture shift in the near future, in a positive way. Over the past decade, Intel hasn’t been as innovative as the companies around them. Some say management could be a cause of this. The new CEO is reputable and has extensive experience at Intel, which could change things around putting them back on top. 

Disadvantages: The biggest downfall for Intel recently has been primarily 3 things. Let’s start with competition. With the high profit margin and lack of competitors, this naturally attracted competition. It didn’t seem like a problem before due to the complexity of these products and the large amount of capital it takes to make it in this industry. But, give companies like AMD enough time and they will prevail, as they have. Both processors have their pros and cons, but for right now AMD has Intel beat on a performance/price ratio. This doesn’t mean they are doomed. It just means they are finally being challenged and they need to become more innovative and cheaper to compete. Secondly, is the lack of production. In the last year they have announced that they are delayed on a new product line. Lastly and probably one that scared most investors the most is Apple announcing they will be designing and manufacturing their own processors. Apple has always used Intel in their products which means in the future Apple will no longer be a large revenue stream.

Valuation and current state: Enterprise multiple and every other valuation measure screams deep value, EV/ebitda, P/E, P/CF are 7, 12.5, 7.4 respectively which are lower than the 5 year averages. The company also has an impressive ROE 26%. Although there have been some downfalls, Intel is still a growing cash pumping machine that will continue to be innovative. Running conservative DCF models double digit returns are seen in a variety of situations. If the company does turn things around, impressive return could occur. Lastly, with a consistent dividend, it adds to the attraction.

Final thoughts: I understand the concerns many people have after recent years. I think that the competition will challenge the company in a good way. They have the infrastructure to “out” innovative AMD and others, it just needs to. A good thing to remember is that will never be a crazy growth stock that is common now days, it will be a steady slow growth cash pumping machine that has a more potential due to its experience and history.

Links:

https://app.tikr.com/stock/multiples?cid=21127&tid=2621295
https://www.gurufocus.com/stock/intc/dcf
https://www.morningstar.com/stocks/xnas/intc/valuation
https://simplywall.st/stocks/us/semiconductors/nasdaq-intc/intel/news/is-weakness-in-intel-corporation-nasdaqintc-stock-a-sign-that-the-market-could-be-wrong-given-its-strong-financial-prospects
https://www.fool.com/investing/2021/01/24/why-intel-stock-spiked-then-crashed-last-week-afte/
https://www.youtube.com/watch?v=1wt8KHIB0G8