Intel Prepared For Second-Half Dash

4/30/2012


  Recent Price
$27
  Dividend
$0.84
  Yield
3.1%
  P/E Ratio
11
  Shares (millions)
5,192
  Long-Term Debt as % of Capital
13%
  52-Week Price Range
$28.78 - $19.16

Global personal-computer shipments grew less than 1% in 2011, while U.S. shipments slipped 5%. Intel ($27; INTC) defied the weakness by finding new homes for its semiconductors in emerging markets and corporate data centers. Sales, per-share earnings, and cash provided by operations soared to all-time highs in 2011.

In April, a rare piece of good news for PCs arrived. Industry researcher Gartner said global PC shipments rose nearly 2% in the three months ended March, a pleasant surprise from the estimated 1% decline. In the days leading up to Intel's March-quarter earnings release, the surprising report helped drive the shares to their highest level since July 2006.

Intel posted a solid March quarter, but not the blowout results investors may have wanted following the Gartner report. Intel topped the consensus for both sales and per-share earnings — and targeted 4% sales growth for the June quarter, above the consensus at the time of the announcement. Gross-profit-margin guidance for the June quarter fell short of analyst projections. Pressure on gross profit margins reflects higher costs and could also portend a surplus of semiconductors flooding the market.

Several catalysts figure to make 2012 a back-loaded year for Intel, a Focus List Buy and a Long-Term Buy. Its fortunes rest not on a single product line, but on opportunities scattered across several fronts.

• The first smartphones powered by Intel processors went on sale in India on April 23. Partnerships with at least four other smartphone makers could help Intel carve out a bigger slice of the mobile market (phones, netbooks, and tablets accounted for 9% of Intel's sales in the 12 months ended March).

• Intel expects 20 million to 30 million Ultrabooks to ship this year, as the company undertakes its largest marketing campaign in a decade. Shipments could double or triple in 2013. Ultrabooks are super-thin notebooks that share some characteristics with tablet computers.

• Microsoft Windows 8, expected out this fall, could help revive semiconductor sales for personal computers (65% of 12-month revenue).

• The last ripples of the hard-drive shortage, caused by flooding in Thailand last year, have probably passed. Intel expects companies to begin replenishing their inventories in the June and September quarters.

• Sales to data centers (19%), up 17% in 2011, were flat in the March quarter. However, the lull coincides with the March launch of a new server platform. Intel sees the unit's revenue growing at a double-digit rate in the last six months of the year.

Within our research universe of more than 4,400 stocks, Intel is one of just 249 (less than 6%) to score above 70 for both Quadrix® Value and Performance. At 11 times trailing earnings, the shares trade 22% below their three-year average P/E ratio and 30% below its peer group. They also trade at 10 times estimated 2012 earnings, a 40% discount to peers. Should Intel meet the consensus profit estimate of $2.61 and the stock return to its three-year average P/E ratio of 14, the shares would top $36 by early next year. An annual report for Intel Corp. is available at 2200 Mission College Blvd., Santa Clara, CA 95054; (408) 765-8080; www.intel.com.

INTEL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '12
0.56
vs.
0.58
+ 0%
28.45
-
24.39
11 - 10
Dec '11
0.68
vs.
0.56
+ 21%
25.78
-
20.40
11 - 8
Sep '11
0.69
vs.
0.52
+ 28%
23.39
-
19.16
10 - 9
Jun '11
0.59
vs.
0.51
+ 21%
23.96
-
19.36
11 - 9
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
54.00
2.54
0.78
25.78
-
19.16
10 - 8
2010
43.62
2.02
0.63
24.37
-
17.60
12 - 9
2009
35.13
0.77
0.56
21.27
-
12.05
28 - 16
2008
37.59
0.92
0.55
26.34
-
12.06
29 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
44
79
94
90
78
74

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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