|Market Growth LT||B+|
|Market Growth ST||D|
While Not Entirely Negative, Growth Indicators Show Several Signs of Weakness
Intel Corporation traditionally healthy sales growth appears to have virtually ground to a halt during its most recent quarter, in which it booked $12.58 billion in total revenue. This represents a decline of 2.53% relative to the year earlier revenue of $12.91 billion for the comparable quarter. This drop contrasts to the 38.27% increase in the company's 12-month trailing revenue over a three year period. Intel Corporation had a total of $52.93 billion in 12-month trailing revenue up to--and including--its latest quarter compared to the $38.28 billion it reported for the equivalent period ended three years ago. This reversal suggests a very rapid deterioration in the company's business which, based on the company's past performance and stable business, might also be affecting its competitors. The company also reported in its latest earnings announcement that profits had fallen from the year earlier period, reversing a trend of long term profit growth. By long term growth we refer to the change in full year (12-month trailing) net income from the comparable period three years earlier. Intel Corporation's First quarter net fell 25.31% to $2.04 billion from the year earlier profit of $2.74 billion (excluding extraordinary items) , which contrasts with its growth in 12-month trailing profit over a three year period. Also including last quarter's results, the company's profit grew to $10.31 billion for the 12 months ended March 31, 2013, a 66.81% jump from full year profit of $6.18 billion reported for the period ended three years earlier. During the last quarter the company's ongoing margin contraction accelerated, with an average drop in EBITDA, operating and net margins of 14.31% from the year ago period.
The company's stock rose 1.48% following the April 17, 2013 report of First quarter results, which were in line with analyst estimates of $0.40 per share. It has now exceeded the consensus earnings estimate by an average of 5.91% in its last six reported quarters, a favorable indicator for the stock.
|Price/Cash Flow Ratio||A+|
Company's Shares Are Attractively Priced Considering the Strength of its Overall Fundamentals
Intel Corporation's shares trade currently at 12.46 times its earnings per share in the last 12 months, which represents a 28.39% discount to our "optimum" P/E ratio of 18.06. This MarketGrader-calculated ratio is based on the company's quarterly earnings--in rolling 12-month periods--over the last two years. Accordingly, Intel Corporation's earnings per share have grown at a -4.22% annualized clip during this time. The recent contraction in profit margins could contribute to further deterioration in EPS growth and also lead to lower Profitability grades, both of which would have a negative effect on the stock. Currently the stock also has a forward P/E of 12.94, which interestingly enough is higher than its trailing P/E but lower than the S&P 500's forward P/E of 15.20. Investors therefore see more value in the company's future earnings but not as much as they see in the market in general; coupled with the company's strong fundamentals, this situation could represent an interesting but risky opportunity, meaning short term volatility with the possibility of handsome returns in the long term.
Intel Corporation's current market value is 3.58 times its tangible book value, which excludes intangible assets such as goodwill; this valuation seems attractive, especially considering that only 30.40% of the company's total stockholders' equity is based on intangible assets. When the value of those assets is added back into total book value, the price to book ratio is an even lower 2.49. Based on the $3.98 in cash flow per share generated by the company in the last twelve months, at the current price of $25.10 the stock trades at 6.31 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its price to sales ratio of 2.35, based on trailing 12-month sales, is 50.80% lower than the Semiconductors average 4.77 ratio. Our final value indicator looks at the relationship between the company's current market capitalization and its operating profits after deducting taxes. Intel Corporation's $123.88 billion market cap is, by this measure, fairly priced at 30.15 times its most recent quarterly net income (including depreciation).
|Return on Equity||B+|
|Quality of Revenues||A|
Profitability Record Is Excellent Across the Board Suggesting a Very Well Managed Operation
Intel Corporation's profitability indicators are pretty strong across the board, with strong returns on shareholder equity, industry-beating operating margins and a very healthy net profit margin. The $10.31 billion in net profits earned by the company in the last 12 months account for 19.48% of all revenue booked in the period. Operating income during that same period accounted for 25.15% of sales, 63.78% higher than the average operating margin for the Semiconductors industry, which was 14.14%. Based on its trailing 12-month earnings, Intel Corporation return on equity of 20.14% is a very strong indicator of profitability and a positive reflection on the company's management efficiency. However, it represents a decline from the year earlier period's return on equity of 26.78%, possibly spelling a slowdown in the company's business.
In spite of this recent downturn and given the still-strong performance by the company its leverage has plenty of room to grow considering its total debt is less than a third of its total equity. The company's capital structure is very healthy with long term debt accounting for only 20.43% of total capital. Intel Corporation's core operations, as measured by the company's EBITDA, have generated $21.49 billion in earnings over the last twelve months, a modest -8.93% decline from the $23.60 billion earned in the equivalent period ended a year ago. EBITDA is used as a way of measuring core earnings since it includes money earned in its operations such as interest expense, income taxes paid and depreciation and amortization, both of which are non-cash charges.
|Cash Flow Growth||A+|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||A+|
Outstanding Cash Flow Indicators Show the Company Is Managed Smartly and in the Best Interest of its Shareholders
Intel Corporation reported a 44.18% growth in cash flow during the latest quarter to $4.28 billion, an impressive increase from the $2.97 billion in the same period last year. This growth seems to be accelerating considering that in the last twelve months the company's cash flow was 1.38% higher than the twelve months ended a year ago, a nice increase but quite lower than the current pace. This upward trend should boost its margins and overall profitability in the next few quarters. Even though the company has $13.23 billion in total debt, its net debt is virtually zero since it has $17.07 billion in cash on hand; and since it generated $4.60 billion in earnings before interest, taxes, depreciation and amortization last quarter, it's safe to say its liquidity is remarkable. Therefore the company's debt is not only very manageable with its own cash flow but could be increased if it wanted to pursue strategic growth opportunities. The company also has the ability to enhance shareholder returns through dividends or by repurchasing its own shares, boosting the future value of its earnings. The current amount of cash and equivalents it has on hand is 24.14% higher than a year ago when it had $13.75 billion; while in this same period its leverage also increased, with total debt as a percentage of total capital climbing from 13.74% to 20.54% today, the company's cash on hand is still larger than its debt.
An important indicator of management efficiency used by MarketGrader is Economic Value Added, or EVA, which measures each company's true return to shareholders after accounting not only for the cost of running the business (operating costs) but also the cost of the capital it employs. By measuring the real cost of capital, both equity and debt, EVA measures the creation of true economic profit. In this case Intel Corporation had $64.34 billion in invested capital in its most recent quarter, a combination of both equity and long term debt. However, the company's weighted cost of equity of 5.67% is much larger than the weighted cost of debt, which is 0.58%. When combined, the two result in a total cost of capital of 6.25%, quite low compared to the company's total return on invested capital of 20.69% based on 12-month trailing operating income. The result is an excellent economic value added of 14.44%, a very high return to investors after all capital costs are covered. The company increased its quarterly common dividend on March 31, 2012 by 7.14%, to 22.50 cents a share from 21.00 cents. It has now distributed dividends uninterrupted for at least five years and based on this latest payout the stock is currently yielding 3.61%. Intel Corporation, which recently increased its payout ratio, has spent $4.45 billion in common dividend payments during the last 12 months. This represents 22.05% of total cash flow and 43.18% of after-tax earnings, a modest increase from the 39.76% of earnings it paid out in the year ended a quarter earlier. The increasing trend of an already elevated payout is worth monitoring for signs fo liquidity problems even though the company's fundamentals are generally healthy.