Should you buy Intel at near $20.00 per share?

One of my competitors asked in a blog if Intel (INTC) is a buy at $19.64.  Their answer was yes.  They wrote, “Intel derives approximately 90 per cent of its revenues from the PC market. Over the years it has dominated and trampled its main competitor Advanced Micro Devices (AMD), and left other chip producers such as Texas Instruments (TXN) far behind. It also has a generous dividend yield of 4.30%, a debt to equity ratio of 0.40, a low PE ratio of 9.01, and a low dividend payout ratio of 38.5%. Intel currently has revenue of 48.44 billion (trailing twelve months), with a quarterly revenue growth of 21%. The balance sheet is certainly solid, and with the price at USD $19.64, off -17.7% from May highs, Intel is looking to be an attractive buy.”

I take issue with their claim that Intel has a low PE ratio of 9.01.  If you take a longer view of Intel you will find that it is trading at 15.9 times its five year average earnings adjusted for changes in capitalization.  Intel has been buying back their stock.  In order to compare 2006 earnings with 2010 you have to adjust for the reduction in shares to get an apples to apples comparison.  For example, in 2006 Intel reported $0.86 earnings per share.  It had a net income of $5.044 billion dollars and it also had 5.88 billion shares outstanding.  Intel only has 5.25 billion shares outstanding now.  Take the net income of $5.044 billion and divided by the 5.25 billion shares.  The 2006 EPS has been adjusted to $0.96 for comparison with any other year.  You will see below how I arrived at the 15.9 PE ratio that is not a value investment.

Intel (INTC)

Market price: $20.01

Market capitalization: $101.50 billion

Shares: 5.25 billion shares


You can see that there was ample opportunity to buy Intel below $15.12.  The technical indicators that I use gave the buy signal in January 2009.  The CCI was deep in the red, the price lifted off the lower Bollinger Band,  the MACD turned upward.  I’ll go through the fundamentals below.

Dividend Record: Intel has been a steady dividend grower for the past 10 years.  It will be interesting to see if they keep up the dividend when the market crashes again.  They have the money to keep paying their dividend.  It looks like they missed on dividend payment in 2006 –OR- Google Finance could be wrong.  Intel is currently paying a quarterly dividend of $0.21 per share.  This equates to a 4.4% yield.  If the stock dropped to $14.00 per share and they keep their dividend constant, then Intel would become a high dividend stock yielding 6%.  That price coincides nicely with my value computations below.


Here is a graphic of the last five years of dividends:


Earning Power: $1.26 average earnings @ 5.25 billion shares

(earnings adjusted for changes in market capitalization)

            EPS                   Net inc.             Adj. EPS            Shares

2006     $0.86                $5,044 M           $0.96               

2007     $1.18                $6,976 M           $1.33

2008     $0.92                $5,292 M           $1.00

2009     $0.77                $4,369 M           $0.83

2010     $2.01                $11,464 M         $2.18

Five year average adjusted EPS = $1.26

Definite buy at or below $10.08 (8 times average EPS; INTC becomes a high dividend stock at $14.00 per share)

Consider buying at or below $15.12 (12 times average EPS)

Consider selling at or above $25.20 (20 times average EPS)

Intel is currently trading at 15.9 times average earnings.  This is not cheap, but it isn’t speculative either.

Balance Sheet:  Excellent


Book value per share: $8.68

Price to book value: 2.31 (good)

Current ratio: 2.23 (over 2.0 is good)

Quick ratio: 1.44 (over 1.0 is good)

Conclusion – Intel (INTC) is a buy below $15.12 and even better below $14.00.  If you own it now, then sell it at a price higher than $25.20.

Disclosure: I don’t own Intel

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Published in: on September 9, 2011 at 1:01 am  Leave a Comment  

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