Tuesday, January 29, 2008

* Stock Analysis: INTC Intel

Linked here is a PDF copy of my analysis of Intel Corporation (INTC) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: Intel Corporation engages in the manufacture and sale of semiconductor chips, as well as in the development of advanced integrated digital technology platforms for the computing and communications industries worldwide.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. INTC is trading at a discount in 2 of the 4 valuations listed above - 1.) Avg. High Yield Price and 3.) Avg. P/E Price. If I exclude the high and low valuation, and average the remaining two valuations, INTC is trading at a 15.5% discount. INTC gets a Star for being fairly valued.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. INTC earned 2 of the 4 available Stars in this section - 1.) Rolling 4-yr Div. > 15% and 2.) Dividend Growth Rate. However, two Stars were deducted in this section since it had only grew its dividend for 4 years and it increased its payout percentage by more than 15 basis point (15%) in 2006. This left INTC with a net of zero Stars in this section.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. INTC did not earn any Stars in this section. Although its NPV MMA Diff. was positive at $8,049, it was below the $10,000 I like to see.

Other: INTC is a company that I owned the 1990's as a growth investor. During that time, INTC and MSFT started paying a "token" dividend as the price of admission into the Dow Jones Industrial Average. Ironically, at that time, I was not happy with them paying a dividend.

Conclusion: INTC earned one Star in the Fair Value section, a net of zero Stars in the Dividend Analytical Data section, and no Stars in the Dividend Income vs. MMA section for a total of One Star, which rates it as a 1-Star Weak stock.

I do not believe the above analysis adequately tells the true story for INTC. The company's year ends on 12/31/2007, thus the last full year information available is as of 12/31/2006 - more than one year ago. There have been two dividend increases since then. Using my pre-screening model [D4L-PreScreen.xls], I entered the most recent dividend and yield information as shown in this linked PDF file (right click and select "Rotate Clockwise").

Based on the prescreen model, INTC has gone from a "Do not buy" to a "Worthy of additional consideration". So let's give it some more consideration. The first thing you will note is that in 2004 INTC doubled its dividend. It appears there was a conscience decision that year to start acting more like a mature dividend company and less like an aggressive growth company. So how are they doing?

The 15% Calc. Div. Growth is very good. However I don't think it is real or sustainable. Included in that calculation are two years where the dividend doubled (2004 and 2005) and it has steadily decreased since then. It appears to be leveling off around 10%, so let's enter 10% in the Override Div. Gro. field (cell C12). Doing that, moves INTC back to a "Do NOT Buy!". Let's see what type of yield it would take to make INTC a buy. By pressing the [Calculate Breakeven] in cell D8, we learn it would take a yield of 2.68% for INTC to meet our minimum threshold. This equates to a price of $18.66 ($0.50/2.68%).

Alas, Mr. Wolfe was correct - You can't go home again. As much as I would like to hang out with my old buddy INTC, now is not the right time. I'll be keeping tabs on him and hopefully sometime in the future we can reconnect.

Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I do not own any shares of INTC.

What are your thoughts on INTC?

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