Stock Analysis: Intel Corporation (INTC)

Linked here is a detailed quantitative analysis of Intel Corporation (INTC). Below are some highlights from the above linked analysis:

Company Description: Intel Corporation is the world's largest manufacturer of microprocessors, the central processing units of PCs, and also produces other semiconductor products.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

INTC is trading at a discount to 2.) and 3.) above. The stock is trading at a 7.2% discount to its calculated fair value of $23.12. INTC earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

INTC earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1992 and has increased its dividend payments for 8 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

INTC earned a Star in this section for its NPV MMA Diff. of the $3,265. This amount is in excess of the $2,700 target I look for in a stock that has increased dividends as long as INTC has. If INTC grows its dividend at 11.6% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 4.0%. INTC earned a check for the Key Metric 'Years to >MMA' since its 2 years is less than the 5 year target.

Memberships and Peers: INTC is a member of the S&P 500. The company's peer group includes: Advanced Micro Devices, Inc. (AMD) with a 0.0% yield, Texas Instruments Inc. (TXN) with a 1.5% yield and STMicroelectronics NV (STM) with a 3.0% yield.

Conclusion: INTC earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks INTC as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $23.03 before INTC's NPV MMA Differential decreased to the $2,700 minimum that I look for in a stock with 8 years of consecutive dividend increases. At that price the stock would yield 3.14%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,700 NPV MMA Differential, the calculated rate is 10.2%. This dividend growth rate is below the 11.6% used in this analysis, thus providing a slight margin of safety. INTC has a risk rating of 1.50 which classifies it as a Low risk stock.

INTC’s results reflect the cyclical nature of the semiconductor industry and demand trends for personal computers. The company is in the best competitive position within the the semiconductor industry and its large size provides scale advantage over smaller rivals. INTC has a strong balance sheet including low debt levels compared to peers and generates substantial free cash flow. The stock recently went green on my dashboard and I have resumed share accumulation when it is trading below my calculated fair value of $23.12 and as my allocation allows.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in INTC (1.8% of my Income Portfolio). See a list of all my income holdings here.

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