INTC Stock – is Intel’s Stock a Good Buy

hey YouTube I’m Jimmy in this video I’m
gonna walk through my analysis of the Intel Corporation ticker symbol INTC
this continues our series or we’re analyzing all 30 stocks in the Dow Jones
Industrial Average this is the 15th video in the series we’re halfway
through and you can see a link to all the videos in the description below then
after we’re done with all 30 companies we’re going to go out and try to build
three different portfolios a value a growth and a dividend portfolio Intel’s
business is broken at the five main segments their largest segment is the
client computing group this segment targets notebook and desktop markets
they recently launched their eighth generation of Intel’s Core processors
and the Intel Core X series then we have the data center segment that segment
focuses on products for the cloud and for communication communication
infrastructure this segment has a potential to keep growing from both
artificial intelligence and the cloud then we have the Internet of Things
segment this segment over the past five years has grown in an average rate of
15% a year which is fantastic this segment makes up high-performance
products for the retail automotive industrial and other embedded
applications this is a rapidly evolving segment so Intel needs to do what it can
to stay ahead of the curve when it comes to innovation then we have the
non-volatile memory Solutions Group and the programmable solutions group the
memory segments they focus on making 3d NAND flash memory and that’s used in
solid-state memory devices then they have the programmable Solutions Group
they focus on making programmable semiconductors and that’s used in cars
military data centers communications industrials and so on now Intel has
claimed claims that over the past year this segment both of these segments look
to really be picking up speed so that’s a good thing so I’ve done research on a
bunch of different industries and I was curious to see how Intel was going to
stack up from a performance perspective relative to some of the other companies
we’ve done and I’m not sure if you saw our recent IBM video we just published a
few days ago but I was surprised to see
the slide in revenue that IBM has had over the past few years so when I got to
Intel I was pleasantly surprised that this chart this is a revenue chart goes
back to 2011 and as you could see after being flat for a few years
it looks like revenue is starting to jump up now these green bars they’re
estimates but the first three quarters of 2018 are already closed so this 2018
estimate is really just how will the fourth quarter add to the first three
quarters but now let’s look at margins and as we could see gross profit margins
have been a bit all over the place and although 2018 looks to be better it
seems that analyst expectations are there 2019 gross margins will pull back
a bit and when we switch over to net income margins we can see that what
really stands out is the expected jump in 2018 and 2019 so if things really
play out that way well that would really be nice for earnings per share and
perhaps the stock price now when I’m analyzing a stock I like to look at a
few different ratios to see what we can uncover about the company any
information we can see to try to understand what they do or how they’re
doing it since we’re planning to put together a dividend portfolio I think
it’s good that we could start there to see how that looks so this chart
illustrates the trailing 12-month dividends going all the way back to 2008
and the dividend yield at that time the current dividend yield is about 2.5
percent that’s the red line and that’s tied to the right axis and we also have
the blue bars which tell you how much the dividend actually was we could see
that it’s about $1.20 over the past four quarters and we can see that
Intel has done a great job of consistently paying their dividend
generally they’ve raised their dividend every year and then keep it that way for
the full year the only real exception was right here
where they kept it about flat for about two years so from a dividend perspective
they seemed quite reliable now the question is can they keep it up well one
good way to tell is by looking at their dividend payout ratio ideally we want
this ratio to be as low as possible what this ratio looks at is how much net
income how much of net income did intel payout in the form of dividends
now you may notice that in q4 2017 there’s no bar at all and this is
because intel had a one time loss according to US GAAP they lost money in
that quarter therefore the dividend they did pay out
it was against a negative number so they put zero here now as an analyst one of
the first things I do when I see a one time loss or gain is to look to see if
it’s really a one time thing and what’s the story behind it in Intel’s case that
was related to taxes and a did in fact look like it was going to be only a
one-time hit so as an analyst I would typically add this number back and had
it been a one-time gain while I was I would have subtracted that number from
earnings now that’s how you end up with a chart that looks like this the blue
lines are US GAAP and the orange lines are analyst adjustments and sometimes
you can see that analyst adjust things higher sometimes they just things lower
now this brings me to a quick side note when we switch this chart from net
income to revenue we can see that both analyst adjusted revenue and GAAP
revenue are the same and this is true almost all the time and that’s because
revenue is very hard to mess with you either sold something or you didn’t and
you may hear it called the net revenue and that they call it net because that’s
after products are returned so net revenue accounts for products that are
sold to the customer and the customer keeps them once they return they get
deducted from revenue and I think that this is important because when we switch
back to net income we can see how much net income can be adjusted how much how
much it can be messed around with now I think there’s lots of ways from
management to move numbers around and I each time that can have a big impact on
things but our job as analysts is to try to move them back to both make them more
comparable to other companies and to get a truer sense of what profits really
look like that’s why generally you’ll see me use
adjusted earnings now another ratio you can use to check the efficiency of the
business is something called inventory turnover basically inventory turnover
looks at how many times inventory is sold and replaced over whatever the
period or whatever the time period is in this case
it’s a year so as we could see the most recent point is about 3.8 times and the
higher the better for this ratio so the fact that this ratio is declining for
Intel tells us that Intel is selling their products less quickly now another
ratio that tells a similar story is something called the cash conversion
cycle this ratio tells us how many days it takes for the company to convert
inventory into cash now technically this ratio includes inventory receivables and
payables so the cash conversion cycle is basically it says ok intel sold the
product Intel collected the receivables and then they paid their payables how
long does it take to convert cash around the loop again back to cash now I don’t
want to necessarily hold this rising cash conversion cycle which is a bad
thing by the way and I don’t want necessarily hold it against them and
here’s why this chart here shows the breakdown of how cash conversion cycle
is calculated the orange bars represent 2017 where the cash conversion cycle was
87 days and the blue bars represent 2014 where the cash conversion cycle was
about 51 days so inventory days are up which tells us that the average days in
inventory being held often this can tell us that management is doing a good or a
bad job of predicting whether or not they’re going to be able to sell their
inventory so this being up is a bad thing we want to see does this keep
getting worse going forward and how much worse we don’t want management to be too
bad at that because we don’t them to have to carry inventory for a long
period of time then we have DSO which is days of sales outstanding this measures
how many days it takes the company to collect the cash from their customers so
if this number spikes it could imply that management is loosening their
payment policy maybe they made them pay in 30 days before now they gave him 60
days well depending on the reason that this is increasing that could mean
something it could tell something about the business in Intel’s case it’s only
up slightly so I’m not too concerned with it then for accounts payable
turnover it looks like Intel is paying their
payables a bit faster now if you think about it from a business perspective
that’s not too bad of a thing but from a cash conversion cycle it’s a negative
thing for the cash conversion cycle ideally
what you want is you’re barely holding an inventory you could turn it over super
fast you take a long long time to pay your vendors and they pay you right away
all your customers pay you right away that being said what do we think that
Intel’s worth and given the business and the the reliability of their discounted
cash flow I think the reliability of their free cash flow I think that using
a discounted cash flow valuation is a good method to use so for free cash flow
we’re using analyst estimates and we have a WACC of nine percent a perpetual
growth rate of two point five percent which I think is a reasonable perpetual
growth rate to use and we get a fair value of about sixty dollars per share
now if you’re not sure how we came up with these numbers I have links in the
description below to different videos that we made for this entire process so
going back to Intel when we consider that intel’s current price is about
forty nine dollars per share our $60 fair value estimate looks pretty good
since that sixty dollars is more than twenty percent away from the current
price i think that when we go to put together our portfolios it’s likely that
intel appears like it should end up in the dividend portfolio the value
portfolio based on the current price and maybe the growth portfolio depending on
how their efficiency ratios look at that time i think it’s something that we want
to we want to monitor because i don’t want it to go too crazy for any
extended period of time but what do you think let me know what you think of
intel and if you own intel already or if you’re considering buying it
what does your research showing you that’s perhaps different from what our
research has shown you do you think it belongs in our portfolio let me know
what you think of the comments below and don’t forget to hit the subscribe button
and thanks for sticking with us all the way to the end of the video and i’ll see
in the next video thanks

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