INTC : Nears 52 wk Low. Buy for Dividends ?
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While chip stocks have been the flavor of the season, with stocks like $NVIDIA Corp(NVDA)$ & $Broadcom(AVGO)$ surging to all-time highs, $Intel(INTC)$ shares have continued to sag.
Year to date, Intel is down -39% and has been a perennial underperformer.
The chip giant is in the red over the last 2 year and 5-year time frames and is flat over the last decade.
It is up around +12% in the last 20 years, but that’s not exactly the kind of performance the company might want to boast about.
Notably, Intel is also among the dot-com era companies that have not managed to revisit their all-time highs in nearly 25 years.
The stock last hit a record high of $75.81 on 23 Aug 2000.
Currently, it trades at less than 50% of those price levels. (see below)
Intel Inc - Past 20 years stock price movement
Intel shares are trading near their 52-week lows at a time when (a) S&P 500 Index and (b) Nasdaq Composite are hitting record highs almost every day.
Is INTC stock a buy now - especially considering its dividend yield of 1.6%, that is much higher than other chip companies?
Intel falls because:
Intel stock is falling because of its tepid growth.
It's top-line and bottom-line growth have sagged, which is also reflected in its stock price.
Facts:,
Intel posted revenues & operating income of $52.7 billion and $12.3 billion, respectively, in 2013.
After 10 years, its revenues & operating income were $54.2 billion and $93 million in 2023.
Company’s earnings have been falling gradually.
In 2022, its operating income was $2.3 billion, that is less than 20% of its 2013’s operating income.
Lost Opportunities.
Intel has missed quite a few buses over the years.
This included:
The smartphone (and iPhone) revolution.
More recently, like other chip companies, Intel lost out to Nvidia, which capitalized on the AI boom.
Earlier this year the company also revealed that in 2023, it incurred a massive $7 billion loss in its foundry business that produces chips for Intel, as well as third parties.
Stock Forecast: Upside ?
Of the 34 analysts covering Intel stock: (see below)
Only 6 rate it as either a “Strong Buy” or “Moderate Buy”.
25 rate it as a “Hold” or some equivalent.
Remaining 3 analysts, rated INTC as a “Strong Sell.”
Overall, the stock has a consensus rating of “Hold”.
And its mean target price of $39.49 is +28.9% higher than current prices.
Analyst Target Price
Analysts' Ratings
Analysts' Rating Breakdown
Will Intel Go Back Up?
During the Q1earnings call CEO Pat Gelsinger stressed that Q1 was the bottom for the company.
Intel should report sequential revenue growth in the coming quarters this year, as well as in 2025.
He listed the following examples as reason on the rebound:
Commercial PC refresh.
Demand for AI PCs.
A recovery in the data center business.
“Cyclical recoveries” in (a) $Mobileye Global Inc.(MBLY)$, (b) Altera, and (c) NEX as catalysts to drive growth in the coming quarters.
Gelsinger believes the losses in the foundry business will peak in 2024.
He expects the segment to break even at the operating profit level “midway between now and the end of 2030” - which is roughly 2027.
Intel is still aiming to become the 2nd-largest foundry globally by 2030.
He also expects the business to post operating margins of 30%.
While those targets might sound ambitious, Intel is capitalizing on the onshoring of chip manufacturing - including in the US, where it is among the biggest beneficiaries of the CHIPS Act.
In its PRODUCTS segment, Intel is working on advanced chips, including those with AI capabilities, to drive sales.
Specifically, it has launched its Gaudi 3, that could:
Deliver on average 50% faster inference.
40% greater inference power efficiency.
when compared against Nvidia H100 on leading generative AI (GenAI) models.
The company expects the business to post adjusted operating margins of 40% by 2030.
In its ALL OTHER segment, Intel is looking to unlock value.
The company has already listed its Mobileye self-driving unit, and is looking at an IPO of Altera, as well.
Intel a “Buy” Now?
Intel’s earnings are currently subdued. As such, its valuation multiples, appear elevated.
The company’s next 12 months (NTM) price-to-earnings multiple is 24.2x, that is way above what the stock has historically traded at.
Intel’s earnings should rebound:
As losses in its foundry business taper down.
And business starts contributing positively to the bottom line, instead of being the drag that it is currently.
Challenges.
Intel faces several headwinds, and the company needs to execute on the ambitious 2030 targets that it has set.
If the company can come anywhere closer to the internal forecasts, it could become a multibagger by the end of this decade.
All of that said, while there will be short-term noise over Intel, it is believed the business is on the right track under Gelsinger’s IDM 2.0 transformation plan.
The stock might fit the bill for long-term investors who can be patient with the price action while enjoying the healthy dividend yield of 1.6% in the meantime.
My viewpoints: (mine only)
I think failure is not an option for Intel.
By hook or by crook, it has to “succeed”, a term that is loosely defined (for now).
This is because out of the $53 billion US CHIP Act budget, $8.5 billion (or 16.04%) has been granted to Intel.
On top of that, Intel Inc is also privy up to $11 billion in loans for its foundry manufacturing plant in Arizona.
The $3.5 billion contract for Intel to manufacture semiconductor chips for US Military has been shelved, for now. (see above)
There is no telling that it could be re-negotiated when Intel’s new manufacturing plant is up and running.
As US look inwards to achieve self-sufficiency, when it comes to advanced semiconductor chips, Intel looks to be the main beneficiary, followed by $GLOBALFOUNDRIES Inc.(GFS)$.
If CEO Pat Gelsinger forecast is accurate, there’s still 6 years to go before Intel turns in a profit.
6 years is a long time, afterall.
With Q2 earning season only weeks away, time to load up on Intel before the big reveal ? Personally, I will take a rain-check and witness if it could go lower.
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Do you think Intel’s dividend 1.6% yield attractive ?
Do you think the Intel under the stewardship of Pat Gelsinger will be able to right the wrongs under previous five CEOs - Craig Barrett, Paul Otellini, Brian Krzanich and Bob Swan?
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Modify on 2024-06-26 22:12
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