Company Overview: Intel Corporation (NASDAQ: INTC) is a leading technology company specialising in microprocessor design and production for the global personal computer and data centre sectors. The Data Centre Group (DCG), Internet of Things Group (IOTG), Mobileye, Non-Volatile Memory Solution Group (NSG), Programmable Solutions Group (PSG), Client Computer Group (CCG), and other associated divisions are among the company's revenue streams. Accelerators, boards and systems, connection devices, memory and storage products, and platform goods such as central processing units and chipsets, system-on-a-chip and multichip packages are all available.

INTC Details

Key Takeaways from FY21 (ended December 25, 2021)

• Flat Revenues: The company's net revenues in FY21 were USD 79.02 billion, a 1.49% increase from USD 77.87 billion in FY20 (ended December 26, 2020), exceeding October guidance by USD 1.2 billion.
• Slight Drop in Bottomline: Net income was USD 19.87 billion in FY21, compared to USD 20.90 billion in FY20, representing a diluted EPS of USD 4.86.
• Boost in Cash Dividends: The company announced a 5% increase in quarterly cash dividends.

 Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• INTC launched a new USD 1 billion fund on February 07, 2022, to promote early-stage start-ups and established organisations that are developing revolutionary technologies for the foundry ecosystem.
• Intel Foundry Services (IFS), a division of INTC, unveiled Accelerator, a comprehensive ecosystem alliance aimed to help foundry clients effortlessly carry their silicon products from concept to implementation, on February 7, 2022.
• On February 2, 2022, INTC announced Project Circuit Breakers, a new addition to its Bug Bounty program, bringing together a community of top hackers to change vulnerability management.
• INTC announced plans to invest more than USD 20 billion in developing two new cutting-edge semiconductor plants in Ohio on January 21, 2022. The investment will aid in increasing manufacturing in order to fulfil the rising demand for sophisticated semiconductors.

Steady Dividends

• On February 07, 2022, the firm declared a quarterly dividend of USD 0.365 per share on its common stock, which will be paid on March 01, 2022, to shareholders of record as of February 07, 2022. This is a 5% increase above what was paid earlier. Over the last five years, the company has regularly paid dividends, as also reflected in the chart below (every D represents a dividend payment):

Consistent Dividends (Data Source: REFINITIV)

Balance Sheet & Liquidity Position

• Growth in Cash Balance: As of December 25, 2021, the company has a cash balance (including short term investments) of USD 28.41 billion, from USD 8.16 billion as of December 26, 2020.
• Increase in Debt Profile: As of December 25, 2021, INTC total outstanding debt was USD 38.10 billion, a 4.67% increase from USD 36.40 billion reported as of December 26, 2020.
• Boost in CAPEX Activity: Net cash used in investing activities climbed to USD 25.17 billion in FY21 from USD 20.80 billion in FY20. The increase in cash used for investing activities was primarily due to increased capital expenditures. In FY21, its capital expenditures were USD 18.7 billion (USD 14.3 billion in FY20 and USD 16.2 billion in FY19).

Key Metrics: INTC's gross and net margins in FY21 were 55.4 % and 25.1%, respectively, versus 52.0% and 10.4% for the industry median. Its Debt/Equity ratio has also been improved to 0.40x as of December 25, 2021, from 0.45x as of December 26, 2020.

Profitability and Leverage Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 27.40% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc. and the BlackRock Institutional Trust Co., N.A. hold the maximum stake in the company at 8.46% and 5.48%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis

• Customer Concentration Risk: INTC's three largest customers accounted for 43% of revenue in FY21 (39% in FY20 and 41% in FY19), with Dell Inc. accounting for 21% (17% in FY20 and 17% in FY19), Lenovo Group Limited for 12% (12% in FY20 and 13% in FY19), and HP Inc. accounting for 10%. (10% in FY20 and 11% in FY19). As a result, if a company relies too heavily on a few clients, its long-term financial health may suffer.
• Global Operational Risk: For the fiscal year ended December 25, 2021, sales outside the United States accounted for 82% revenue, with revenue from billings to China accounting for 27% revenue. As a result, several global and regional factors beyond the company's control can harm its operational and financial health.
• Stiff Competition: The company operates in a highly competitive industry prone to significant technical and market developments. Any changes in industry standards, client and end-user requirements, frequent product releases are all factors to consider. Its competitive position can deteriorate if it does not anticipate or respond to these developments, and its products or technologies may become uncompetitive or obsolete.

Outlook

• Looking ahead, INTC expects revenues to be about USD 18.3 billion in Q1FY22. On a GAAP basis, it anticipates EPS to be about USD 0.70, while on a Non-GAAP basis, it expects EPS to be around USD 0.80. On a GAAP and Non-GAAP basis, it forecasts Q1FY22 gross margins of roughly 49% and 52%, respectively.
• The company further expects the tax rate to be approximately 25% and 15% on the GAAP and Non-GAAP basis in QFY22.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: INTC has corrected ~14.56% in the past month. The stock is currently leaning towards the lower band of its 52-week range of USD 46.30 to USD 68.49. We have valued the stock using the Price/Earnings-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its market dominance in the semiconductor chip space, robust profitability margins, rising dividend yield, and global market presence. We have taken peers like Qualcomm, Inc. (NASDAQ: QCOM), Texas Instruments, Inc. (NASDAQ: TXN), and others. Considering the robust cash flows, proven track record, encouraging outlook, underutilised capital expenditure, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 47.60, down ~0.05%, as of February 14, 2022, 10:04 AM ET.

INTC Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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