Intel Then and Now

On Friday, Intel's stock price closed the week at $24.03 per share and reached $24.24 on Wednesday.  Sitting above $24, Intel is at a multi-month high, despite the tablets-replacing-PCs story and the gloom and doom coming out of Europe.

Intel last closed above $24 three times in April 2010, reaching a monthly high of $24.22 on April 15, 2010.  Previously, Intel traded above $24 for a short period right before the fall of Lehman Brothers, reaching a monthly high of $24.52 on August 12, 2008.

It is interesting to look at how Intel's fundamentals and valuation have changed since its last two trips above $24.

Date: October 21, 2011
Share price: $24.03
P/E: 10.4x
Dividend yield: 3.50%
Shares sold short: 150.3 million
Revenue: $51.6 billion
EBITDA: $22.6 billion
Net income: $12.8 billion
EPS: $2.31
Net Cash: $8.1 billion

Date: April 15, 2010
Share price: $24.22
P/E: 22.2x
Dividend yield: 2.60%
Shares sold short: 57.5 million
Revenue: $38.3 billion
EBITDA: $16.3 billion
Net income: $6.2 billion
EPS: $1.09
Net cash: $13.8 billion

Date: August 12, 2008
Share price: $24.52
P/E: 20.3x
Dividend yield: 2.28%
Shares sold short: 106.3 million
Revenue: $39.9 billion
EBITDA: $14.9 billion
Net income: $7.1 billion
EPS: $1.21
Net cash: $9.9 billion

(Intel's past results come with the caveat that it acquired McAfee for $7.7 billion in a deal that was announced on August 19, 2010 and closed on February 28, 2011.  At that time, McAfee had $2.0 billion of revenue, $430 million of EBITDA and $168 million of net income.)

Compared with the previous two periods that Intel traded above $24, today Intel's valuation seems more compelling.  Revenue and profits have increased, the P/E multiple is lower and the dividend yield is higher.  Also, net cash has almost returned to the 2008 level, before the McAfee acquisition.

Intel surely faces challenges.  It is relatively weak in tablets and mobile, which are growing fast at the expense of PCs.  End-markets in the US and Europe face economic uncertainty.  Furthermore, it is much harder to grow as the company keeps on getting larger and semis always face cyclicality.  That said, Intel has a few bright spots, especially data centers and emerging markets that are driving its growth.

There is considerable negative sentiment concerning Intel right now.  Short interest has increased from a low of 48 million shares in January to 150 million shares today.  And, 150 million shares sold short is higher than the last two times the stock reached $24.  Goldman Sachs' research analyst James Covello has a Sell rating on the stock since May 18, 2011, when the stock closed at $23.41.

With the stock back to $24, both the bulls and the bears can make a good case for their bets.  There is a lot of uncertainty now with the ongoing European debt saga, so at any moment macro events may shake the market.  However, like several other large caps, Intel's stock price is basically flat for the last decade, despite improving fundamentals.  At some point, multiple contraction will give way to a new driver for the stock.


DISCLOSURE: I AM LONG INTC.