In this installment of Using a Value Line Report we will be taking a closer look at the world’s largest semiconductor manufacturer, Intel Corp. (INTC - Free Intel Stock Report). Specifically, we will be analyzing the various factors that have earned the company its blue chip status, as well as identifying and highlighting the company’s investment merits.
At first glance, there are a few characteristics about Intel that stand out. One of its strongest attributes is unquestionably the generous dividend yield. This can be found in the top right-hand corner of the page, in the Top Label. This ratio is calculated by annualizing the most recent declared/paid dividend, which can be found in the Quarterly Dividend box or the Statistical Array, and dividing that total by the most recent price, which is also located in the Top Label. The result is 3.6% (as of the report dated 1/3/14), which is well above the Value Line average. Double taxation implications aside, an automatic 3.6% annual return on your investment is nothing to scoff at. Furthermore, the company has a history of consistently increasing its dividend distributions. In fact, the Annual Rates box reveals that Intel’s dividend growth rates over the past 5 to 10 years have been in the double digits. Moreover, although the rate has been declining, the dividend growth-rate projections out to late decade reveal that, based on analyst Alan G. House’s financial estimates, the company’s dividends should increase 7% over the next 3 to 5 years. This is an attractive prospect for investors seeking a solid income-paying equity.
Other data points that should appeal to investors is the company’s Timeliness and Safety rankings, which can be found in the Ranks box at the top left-hand corner of the page. This reveals that the stock not only boasts a superlative rank for Safety (1: Highest), but it is also timely (2: Above Average). These figures signify that the company’s financial condition is top notch and, furthermore, the shares are likely to outperform the broader market’s averages over the next six to 12 months.
This alone ought to compel investors to grab a few shares. However, there are yet other data that should prompt caution here. After shifting one’s attention down to the Quarterly Earnings box, it becomes apparent that Intel’s earnings have been struggling for the past two years, as P/C and laptop sales (Intel’s core business) have faltered with the rising popularity of smartphones and mobile data devices. Moreover, Mr. House indicates in his estimates for 2014 that share earnings could well be flat with the 2013 tally. In addition, scanning down to the bottom right-hand corner of the page, the Financial Strength box reveals that the stock’s score for Price Growth Persistence, 35, is not particularly compelling.
It is fair to assume, though, that the aforementioned earnings expectations are already baked into the current stock price, as the most recent fourth-quarter result ($0.51, reported on 1/13/14, after our last review) came in just two pennies shy of Mr. House’s call of $0.53. In addition, the stock price reaction was not particularly adverse. Assuming Mr. House’s estimates for 2014 are close to the mark, the Timeliness rank of 2 suggests that we believe the market will continue to favor these shares. One reason for this may well be INTC’s Price/Earnings or P/E Ratio, which can be found in the center of the Top Label. At 13.1 times projected 12-months earnings, this is below the market average of 16, as well as the broad line semiconductor industry average, which is in the low 30s. Moreover, with technology experts expecting solid spending in the semiconductor space this year, there is the possibility that Mr. House’s estimates may prove conservative. Too, Intel has noted that it intends to spend heavily on shoring up its mobile device capabilities. Although catching up to the market-share stranglehold of its competitor ARM Holdings (ARMH) is likely to prove a daunting task, further investment into the mobile space should augur well for profits over the long term.
Another factor to consider is the equity’s long-term investment prospects. Moving over to the top left-hand corner of the page, we find the Target Price Range in the 3- to 5-year Projections box. These data suggest that INTC shares offer strong total return potential out to late decade. Therefore, although the near-term earnings outlook leaves something to be desired, it would appear that Intel is a solid overall investment choice for those employing a momentum, as well as a buy-and-hold strategy. Furthermore, its income stream and strong financial condition ought to appeal to dividend-seeking investors.
At the time that this article was written, the author held no positions in any of the stocks mentioned.