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 premium to all four valuations above. The stock is trading at a slight discount to its calculated fair value of $28.30. 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 9 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) or Treasury bond? 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 $3,107. This amount is in excess of the $2,600 target I look for in a stock that has increased dividends as long as INTC has. The stock's current yield of 3.15% exceeds the 3.1% estimated 20-year average MMA rate.
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 2.2% yield and STMicroelectronics NV (STM) with a 6.5% 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 Strong stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $29.71 before INTC's NPV MMA Differential decreased to the $2,600 minimum that I look for in a stock with 9 years of consecutive dividend increases. At that price the stock would yield 2.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,600 NPV MMA Differential, the calculated rate is 10.6%. This dividend growth rate is lower than the 11.3% used in this analysis, thus providing a margin of safety. INTC has a risk rating of 1.50 which classifies it as a Low risk stock.
INTC’s results are tied to the cyclical nature of the semiconductor industry and demand trends for personal computers. PC growth in 2012 is expected to slow, but this will be offset to some extent by the introduction of new products in the marketplace (servers, ultra books, mobile and 22nm). Some observers have speculated that INTC will have trouble competing against the design firm ARM ARMH.
However, 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. I will continue share accumulation when INTC is trading below my calculated fair value of $28.30 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 (3.8% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.
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