Intel (INTC): Priced for Pessimism

Posted Dec 15th 2010 10:30AM by Steven Halpern
Filed under: Intel (INTC), Newsletters, Stocks to Buy

Intel (INTC) "Research ﬁrm Gartner recently projected PC shipments would rise 14% this year and 16% next year, down from a September forecast of 18% growth in both periods," notes Richard Moroney.

The editor of Dow Theory Forecasts explains, "Intel (INTC), which provides microprocessors for 81% of PCs, is highly dependent on computer sales. However, the semiconductor giant's share price already reﬂects plenty of pessimism.

"Intel, like the rest of the industry, has enjoyed strong operating momentum in the wake of dismal performance in 2009. Over the last three quarters, Intel posted 31% higher sales and sharply higher proﬁt margins.

"Free cash ﬂow more than doubled. Intel's biggest division, the PC group (73% of sales in the ﬁrst nine months of 2010), builds microprocessors, chipsets, and motherboards for personal computers, such as desktops, notebooks, and netbooks.

"So far in 2010, sales have risen 28% and income has more than doubled. The data-center unit (19%) builds similar components, but for use in servers, workstations, and storage equipment.

"The unit also makes connectivity products for computer networks. Sales have jumped 39% so far this year, with proﬁ ts up 124%.

"Intel strives to move beyond computers, as evident by its third segment, which supplies semiconductors for mobile handheld devices (4%).

"Although the segment still operates at a loss, it has lost far less money this year than it did in 2009. The unit should get a boost from Hewlett-Packard's selection of Intel chips for its tablet computer.

"Intel says its chips have been chosen for 35 tablet computer models. Sandy Bridge, Intel's next-generation processor for both PCs and servers, should launch in the March quarter.

"The platform could spark a major product cycle for Intel, emphasizing sharper graphics and paving the way for smaller PC devices.

"Consensus profit estimates for 2011 have risen in the past month, and despite the decline forecast for 2011, the market expects double-digit annual growth in per-share proﬁts
over the next ﬁve years.

"Shares trade at 11 times the 2011 estimate, 19% below the peer-group average. Intel initiated its divided in 1992. That dividend, raised 14% last month, has grown at an annualized rate of 17% over the last three years.

"The stock has returned 9% over the past 12 months, lagging the average of 18% for semiconductor stocks in the S&P 1500 Index.

"At 12 times trailing earnings, Intel trades 35% below its ﬁve-year average and 19% below the average P/E for semiconductor stocks in the S&P 1500 Index. Intel, yielding 3.3%, is a Buy and a Long-Term Buy."

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