Intel (NASDAQ: INTC)
QVI Research Report | Updated Coverage | February 2023
Summary
Intel, one of the largest semiconductor companies in the world, holds the lion’s share of the PC and server processor markets.
However, its shareholder yields are underperforming the 10-Year Treasury.
Despite a double-digit profit margin and below-average downside risks, returns on management have been lackluster of late.
Valuation multiples suggest a bargain stock price, although operating earnings to enterprise value reflect an undersold stock held for its generous forward dividend yield.
In this updated QVI research report, the stock appears to be more of a falling knife or deep value play than a quality value investment.
Premium subscribers: When referencing this research report, remember to access your Quality Value Investing Glossary of Investing Terms and Metric Targets. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on February 7, 2023, and intended for illustration only.
Intel Value Proposition
QVI Research Report’s value proposition section provides a brief synopsis of the company’s business model, major-exchange listing, stock symbol, market capitalization, and dividend-paying status. In addition, it defines the competitive advantages of a company’s products or services to its customers compared to the industry, including the stock’s historical performance vs. the sector and market.
Intel Corporation (NASDAQ: INTC) is a dividend-paying large-cap stock in the semiconductors industry of the information technology sector. INTC was added to the QVI Concentrated Portfolio on June 23, 2021, with a buy rating at a split and dividend-adjusted $51.81 a share.
Intel Corporation designs, develops, manufactures, markets, and sells computing and related products worldwide. It operates through Client Computing Group, Data Center and AI, Network and Edge, Mobileye, Accelerated Computing Systems and Graphics, Intel Foundry Services, and Other segments. The company was incorporated in 1968 and is headquartered in Santa Clara, California, USA.
QVI’s value proposition elevator pitch for Intel:
Intel, one of the largest semiconductor companies in the world, holds the lion's share of the PC and server processor markets. Despite newsworthy headwinds of recent, its legacy status and market foothold should continue over the longer term.
Performance vs. Sector and Market
The chart below illustrates INTC’s performance against the Technology Select Sector SPDR Fund ETF (NYSE: XLK) and the SPDR S&P 500 ETF Trust (NYSE: SPY) since QVI’s initial coverage of Intel in June 2021.
For example, INTC has drastically underperformed, at a loss, the total returns of its sector and the broader market, each flat-lining during the coverage timeframe.
Due Diligence Resources
For a more in-depth analysis of the all-important value proposition, visit Intel’s investor relations webpage, and its most recent Form 10-K Annual Report submitted to the U.S. Securities and Exchange Commission or SEC.
QVI’s value proposition rating for Intel: Bullish.
INTC vs. XLK and SPY
Intel Corp (INTC) Total Return: -44.61%
Technology Select Sector SPDR ETF (XLK) Total Return: -1.77%
SPDR S&P 500 ETF Trust (SPY) Total Return: -0.77%
Since June 23, 2021 (as of February 7, 2023)INTC Shareholder Yields
QVI Research Report’s shareholder yields section uncovers the equity bond rate of the company’s common shares. It aims to quantify the yields on earnings, free cash flow, and dividends to measure how the targeted stock compares to the prevailing yield on the 10-Year Treasury benchmark note.
Earnings and Free Cash Flow Yields
INTC’s earnings yield traded above the floor at 6.75%, as demonstrated in the below chart. However, at -8.06%, INTC’s free cash flow yield traded well below the targeted threshold.
As inverse valuation multiples, the earnings and free cash flow yields suggest that INTC trades at or near fair value. QVI will further explore valuation multiples later in this report.
Dividend Yield
Intel offers a generous forward dividend yield of 5.03%, supported by a higher-than-targeted 78.92% payout ratio, thus indicating a dividend rate that may be in jeopardy of annual stagnation or, worse, being cut.
INTC yielded 2.82% from an annual payout of $1.46 on a split- and dividend-adjusted cost basis of $51.81 per share on June 23, 2021, the date of QVI’s initial stock coverage. Thus, QVI’s yield-on-cost basis was -341 basis points [bps] below the forward yield.
Average of Shareholder Yields
Quality Value Investing takes the average of the three shareholder yields to measure how the stock compares to the prevailing yield of 3.67% on the 10-Year Treasury benchmark note. For example, the average shareholder yield for INTC was 1.24% or -243 bps below the 10-Year and 0.50% or -317 bps below the Treasury yield when using the June 2021 yield-on-cost basis.
QVI’s shareholder yields rating for INTC: Bearish.
INTC Shareholder Yields
Intel Corp (INTC) Price: $29.02
Intel Corp (INTC) Earnings Yield: 6.75%
Intel Corp (INTC) Free Cash Flow Yield: -8.06%
Intel Corp (INTC) Dividend Yield: 5.03%
One-Year Trailing (as of February 7, 2023)Intel Fundamentals
QVI Research Report’s fundamentals section measures the performance strength of the company’s senior management by analyzing revenue growth, net profit margin, and returns on equity and invested capital.
Revenue Growth and Net Profit Margin
Per the below chart, Intel had negative three-year annualized revenue growth of -20.21%, dramatically underperforming the +16.89% median growth for the information technology sector.
Nevertheless, Intel had a trailing three-year double-digit net profit margin of 12.71%, quadrupling the sector’s median net margin of 3.19%.
Returns on Equity and Invested Capital
Intel’s management was producing a trailing three-year return on equity or ROE of 8.00%, below the targeted threshold but outperforming the sector’s median ROE of 4.87%.
Stock buyback programs often elevate ROE. For example, Intel’s board of directors had authorized repurchases of $110 billion, with $7.2 billion still available as of December 2022.
At 5.76%, Intel’s three-year return on invested capital, or ROIC, is under the threshold but tops the sector’s median ROIC of 2.97%, indicating that its senior executives are competitively adequate capital allocators.
Nonetheless, Intel’s ROIC does not cover its reasonable weighted average cost of capital or WACC of 6.76%. (Source of WACC: GuruFocus).
Despite a sector-beating double-digit net profit margin and a recent history of aggressive share buybacks, Intel’s management performance warrants diminished confidence from its negative revenue growth, modest ROE, and capital returns that don’t cover the weighted costs of available capital.
QVI’s fundamentals rating for Intel: Bearish.
INTC Returns on Management
Intel Corp (INTC) Revenue (Annual YoY Growth): -20.21%
Intel Corp (INTC) Profit Margin: 12.71%
Intel Corp (INTC) Return on Equity: 8.00%
Intel Corp (INTC) Return on Invested Capital: 5.76%
Three-Year Trailing (as of February 7, 2023)INTC Valuation, Risks, and Investment Thesis
Next, QVI dives into the valuation multiples, downside risks, potential catalysts, and overall investment thesis of Intel Corporation (INTC). Let’s dig further after reading the required disclosures and disclaimers.
Disclosure: I/we have a beneficial long position through direct ownership in shares of INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Substack paid subscriptions). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in their own research or due diligence and consider (as appropriate) consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.