There's No Reason Intel Won't Continue To Surge
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Deeply entrenched in the business of computing and communications, Intel Corporation (NASDAQ: INTC) is the driving force behind much of the world’s computerized technology. Largely seen as a signal in the semiconductor industry, Intel sells its integrated circuitry directly to equipment manufacturers, which allows users’ computers, CD and DVD players and networked workstations to work and talk to each other. With quickly advancing technology, investors may wonder whether Intel can continue to deliver the returns it has produced to date. In my analysis, I will discuss why Intel is a must buy for any long term investor looking to bolster their portfolio.
Intel shares are currently trading around $27 at the time of writing. The company’s last 12-month earnings per share of $2.44 puts its shares on a trailing price to earnings ratio of 11.22. The company currently has total cash of $14.84 billion and total debt of $7.33 billion. Intel’s relatively low debt to equity ratio of 15.97 indicates that the company is not financing its high growth with debt. With earnings expected to be in the region of $2.41 for the year ending December 2012, its forward price to earnings ratio slips to 10.33. For a company that produces an operating margin of 32.37%, and with a return on equity of 27.15%, this trading price should look attractive to potential investors.
Texas Instruments (NASDAQ: TXN), one of its major competitors, is far smaller in terms of market capitalization, and trades on a trailing price to earnings ratio of 13.65. Looking forward, this ratio stays relatively steady at 13.21, on earnings that are barely expected to move. Were Intel shares to be rated equally, we would see the share price move to around $32.
Like Advanced Micro Devices (NYSE: AMD), Intel’s products are best known for their use in the personal computer space. However, Advanced Micro Devices announced a cut of 10% of its global workforce back in November 2011 as it re-focused its direction. Already focused, Intel is moving with the times, and plans to increase its sales to tablet manufacturers for use in the healthcare and retail industries.
Intel is cash rich; its $14.84 billion dollars of cash in hand is giving it the financial firepower to take advantage of market opportunities, should they arise. Its debt to equity ratio of 15.97 is less than a third of Texas Instrument’s (52.61) and an eighth of Advanced Micro Devices (118.12).
An added bonus for shareholders of Intel is the 3.10% dividend yield. The company has increased its dividend for seven consecutive years, and paid dividends since 1992.
Back on October 18th, Intel’s third quarter results delivered stronger-than-expected growth. Record revenues of $14.3 billion, an increase of 29% year on year, and net income of $3.7 billion increasing 24% over the same period, all beat analysts expectations. It was announced that its share buyback authorization had been increased by $10 billion (perhaps somewhere to spend the company’s cash and increase shareholder value in the absence of other opportunities?). All areas of its business are growing strongly, except the Intel Atom microprocessor section, where revenue fell 32% year on year.
Intel is concentrating on what it does best, while seeking to enhance shareholder returns. With its new endeavor Ultrabooks, the company is looking to apply pressure to its competitors and expand its offerings to major players Dell, Acer, Vizio and others. Intel could also be helped by share repurchase programs or by acquisition. Whichever course the company decides to take, it has plenty of cash to do so without making a call on the market.
Intel’s revenues, and net income, are set to continue to grow. Sturdy margins, and a good level of dividend cover should enable the company to continue to offer sector-beating dividend yields. It continues to operate globally with some of the world’s most respected organizations.
Though Intel is trading right around its 52 week high of $27, I believe that on the basis of news and fundamentals, the shares are headed in an upward trend over the coming quarters. A price around current levels could become a strong level of support. There is no reason I can see for them to have a lower than average sector price to earnings ratio, and I expect earnings to continue to grow well. I expect this stock to perform very well throughout 2012.
Vatalyst has no positions in the stocks mentioned above. The Motley Fool owns shares of Texas Instruments and Intel. Motley Fool newsletter services have recommended buying shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
