Intel Stock Analysis | Why Shares of Intel Are at the Top of My Buy List

Intel stock has piqued my interest. It’s currently on the top of my buy list. To see why, I’m going to show you five financial charts. As a dividend investor, I always look at these useful charts before buying. 

And to start my research, I always ask… why should I not invest in the company? Too many investors become enamored with a company’s products and services. They focus on the upside potential and fail to incorporate risks, as well as looking at the underlying value. 

Overall, if the risk-to-reward looks favorable enough, I’ll put up to 10% of my total savings into the company. Unlike most other sources of info out there, I put my money where my mouth is. So, I hope you stick around.

Why Shouldn’t I Buy Intel Stock? 

Up first, Intel is losing market share to AMD. After lagging behind Intel for decades, it’s been catching up in recent years. AMD uses Taiwan Semiconductor Manufacturing, while Intel makes its own chips. This has led to some issues. 

Intel recently announced a six-month delay in its 7-nanometer chip product. As a result, its stock price closed 16% lower for that day. That’s a big move for a big company. And on the other side, AMD was up about that much. AMD already uses 7-nanometer products. 

Now, Intel is considering moving away from making chips in-house. In the short-term its constraints and setbacks will lead to more market share loss. And on top of AMD taking market share, Apple is also phasing out Intel chips in its Macs. For a full transition it will take two years and it will end a 15-year partnership. Although, Apple already uses its own custom chips in the iPhone, iPad and Apple Watch. 

These are some of the biggest concerns I have when it comes to investing in Intel. Intel’s cut of the pie might be smaller going forward… but growth of overall chip markets might offset that. More devices are coming online and the demand for processing units continues to climb. Intel is a bit bandwidth constrained for now but will continue to expand. And this gives it some ability to cherry-pick the best projects. 

Still, in the short-term popularity contest, setbacks have pushed down Intel’s share price. But for long-term investors like me – who care more about future cashflows relative to cost – it’s looking like a better investment opportunity. 

Intel Is a Diversified Cashflow Machine 

Unlike AMD, Intel is much more diversified and has huge cashflows to innovate. It’s helping lead the charge with 5G, cloud computing, AI and autonomous driving. It acquired Mobileye – a leader in computer vision for autonomous driving – for $15.3 billion. 

Intel’s acquisitions and organic growth should continue to push Intel’s revenue higher over the long-run. And when looking back, this chart shows both the climb in total sales and operating income over the last 10 years… 

Intel revenue and operating income 2010-2019, as well as operating income margin

For a company that’s losing market share in certain computing segments, that’s healthy overall sales growth. And Intel has around a 30% operating income margin. That’s huge. This helps lead to strong free cash flow for R&D, as well as rewarding shareholders with dividends. 

I’ll show you free cash flow and dividend trends in a moment. But first, let’s take a closer look at Intel’s financial health… 

Intel total debt and cash history 2010-2020 and investment grade credit rating of A+

Debt has climbed higher coming close to $40 billion. But in a low interest rate world this can make more sense and Intel has an investment grade credit rating of A+. Overall, Intel has more than enough cash – over $25 billion – and free cashflow to manage its debt. 

Up next, let’s take a look at free cash flow and total dividends paid… 

Intel free cash flow and total dividends paid history 2010-2019, as well as the dividend payout ratio

Over the last 10 years, free cash flow has increased. Its bounced around a bit but has easily covered dividend payouts. With last year’s payout ratio below 40% and solid future prospects, the dividend looks safe. 

The board of directors has also continued to increase Intel’s annual dividend per share. This next chart shows that rewarding trend, as well as total shares outstanding. 

Intel stock annual dividend per share and shares outstanding history 2010-2020

Intel has bought back over a billion shares outstanding over the last 10 years. This has increased existing shareholder ownership. And after a 5-month buyback pause due to COVID, the company has announced another $10 billion buyback program. 

Some analysts argue that this money should instead be put towards fixing its chip delays. Although, I disagree. Intel shouldn’t throw money at a problem and is already taking steps to improve on that end. Intel has the cashflow to overcome those issues, as well as return value to shareholders. 

Share buybacks make much more sense when Intel stock is trading at lower levels. And a $10 billion buyback at current levels will reduce shares outstanding by about 5%. 

Now for one last chart, let’s look at two quick valuation metrics… 

Intel stock ev-to-ebitda and price to sales ratio history 2010-2020

Price-to-sales comes in at about 2.7. That’s below its average over the last 10 years. And one of my favorite metrics, EV-to-EBITDA, comes in at 5.6. That’s the lowest over this timeframe and in the current market, it’s hard to find such a reasonable level. 

Overall, Intel’s current valuation and future prospects have pushed it to the top of my buy list. I’ve done deep research and have shown you some highlights. If you’d like more insight or have any questions, please drop a comment down below. Have you invested in Intel? Or, why won’t you invest? Are there any important considerations I’ve missed?

Invest mindfully,

Brian Kehm

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