- Operating income declining since 2014.
- Increased revenues each year going back to 2014
- Research and Development costs have increased each year since 2010.
- Net Cash from Operations steady at around $20,000(million)
- Net Cash used for investing increased dramatically in 2016, from $8,183 in 2015, to $25,817 in 2016.
- Net Cash used in financing activities decreased since 2014.
- Free cash flow remains trending upwards since 2012.
Looking at INTC’s financials a few things pop up at me. First, they are bringing in a lot of revenues each year, so revenue growth doesn’t seem to be a problem. For the trailing 12 months, INTC recorded a Revenue – Per – Share amount of $12.19. INTC’s 3-year revenue growth rate is also higher than 61% of the companies in its industry. During the last 10 years, the average growth rate for INTC revenue per share was 8.20% per year. INTC has also increased its RPS since 2013 by almost $2 per share.
Moving to income, INTC has decreased its operating income per year since 2014. However, this can be explained via increased expenditures in R&D, as well as Mergers, Restructurings, and Acquisitions, most notably todays acquisition of Mobileye. INTC spent $1,886 on M&A in 2016 compared to $354 in 2015.
When it comes to the balance sheets, INTC is solid. Starting with Intangible Assets, INTC took a dramatic leap upward in 2016, with Intangibles at $23,593 compared to 2015 of $15,265. Total assets look very similar, with expansive increases since 2012 in which it had $84,351 in total assets, compared to 2016 which it boasts total assets of $113,327. Finally, INTC has increased its goodwill by nearly $3,000 since 2015, going from $11,332 to $14,099.
INTC appears to be fairly valued by the market now. With its most recent acquisition of Mobileye, INTC is making a big bet on the autonomous auto industry, and they are trying to become one of the front runners. If their bet pays off, it will rocket their company forward, being the voice and face of autonomous vehicle technology. Along with being valued, I wouldn’t buy it right now given that it is trading 14.13 times its free cash flow. Although ranked 62% higher in that category than its competitors, you can get INTC for a better price to cash flow in the future. Looking at Tangible book value next, we see that INTC is trading nearly 4 times it’s tangible book value. Even though it is lower than 75% of the industry, it is still too expensive to have in a value investing portfolio.
Finally, let’s look at what INTC does with its capital and assets to see how well it returns money to the business and to its shareholders. Firstly, INTC has a Return on Tangible Asset (ROTA) of 15.96%, which is better than 88% of the companies in its industry. For the year, INTC has reduced its ROTA by 3%, but this is due to the increased spending in M&A which haven’t had the time to calculate the returns they have had. Next, we look at Return on Tangible Equity (ROTE). INTC’s most recently quarterly ROTE came in at 34.60%, better than 91% of the companies in its industry. INTC boasts a 19.71% ROC, sports a 28.22% FCF Margin, and a 27.64% Operating Margin, all of which are better than at least 85% of its industry.
In conclusion, I love INTC as a company, and I love it as a long term hold for a large cap position in a value portfolio. However, at these prices, it is not undervalued, it is valued correctly. Look for a pullback into the $25 – $30 price range to give yourself a comfortable margin of safety on this stock, and I would start purchasing once INTC starts trading around 10 times free cash flow.