Is Intel Stock Undervalued?

Intel Corporation (NASDAQ:INTC) is a global technology company based in Silicon Valley. Its microprocessors are embedded in some of the most popular computer brands, making it the biggest semiconductor chip manufacturer in the world. Still, it faced a variety of issues caused by the coronavirus that caused some investors to be bearish on the stock.

Competition is heating up, and manufacturing delays from the pandemic took a toll on stock prices. Its trading price moved everywhere from the low $40s to the upper $60s, so is Intel stock undervalued?

The company is far from defunct – in fact, it’s still profitable. It generated plenty of revenue throughout the pandemic, and it recently sold its flash memory business to focus further on its core businesses.

It’s not experiencing the market gains competitor Advanced Micro Devices, Inc (NASDAQ:AMD) is though. It’s worth investigating the company further and INTC stock to determine why that is.

Why Intel Stock Went Down

Intel experienced its biggest drop since 2000 twice during the coronavirus pandemic. While it bounced back relatively easy from the first, the second has been lasting.

Much of this happened when the company announced a 12-month release delay in its 7-nanometer chips due to the pandemic. This puts it behind rival AMD for the second chip generation, after it already fell behind in 10-nanometer chips.

Some investors believe AMD may take over as the leading semiconductor chip companies, and the competition is flooded with high tech manufacturers eager for a piece of the pie.

Other red flags that pushed the stock down was the departure of the company’s chief engineering officer. It’s now struggling to keep up with the rest of the industry instead of leading it, which put its price at a discount heading into the 2020 holiday season.

Intel also faces problems looming from the U.S.-China trade war, and it could easily find itself upended by a Taiwan semiconductor company. It also faces heavy competition from the likes of Qualcomm, Inc. (NASDAQ:QCOM), Nvidia Corporation (NASDAQ:NVDA), and Samsung Electronics Co Ltd (KRX:005930).

So how did the market crash affect the company’s financial statements beyond manufacturing delays.

Intel Financials Met Analyst Expectations

Intel’s most recent financial results are for the quarter ending October 3, 2020. It reported revenue of $17.4 billion, giving it non-GAAP earnings of $1.11 per share for the quarter.

This met analyst expectations and company forecasts, but represents a drop from its $19.2 billion in sales and $1.42 per share earnings for the same quarter in 2019.

Much of this slump was attributed to the company’s large enterprise and government businesses experiencing negative growth of 47 percent after growing for two years straight.

Still, the surge of laptop sales featuring Intel chips helped drive the company’s revenues, and it announced an accelerated repurchase plan in August of $10 billion worth of INTC stock.

It also announced in October that it reached an agreement to sell its NAND memory chip business to SK Hynix, a South Korean technology firm, for $9 billion.

The company has a 26.5 percent operating margin and pulled in $75.3 billion for its fiscal year 2020. This gave it $4.90 non-GAAP earnings per share for the fiscal year.

It also reported between $18 million and $18.5 billion in free cash flow for the quarter. Does this mean it’s $225 billion+ market cap is too low?

Is Intel Valuation Too Low?

Intel’s market cap represents approximately a 3x premium on its annual revenue, and it has a 9.92 P/E ratio. It’s likely to trend slightly upward for at least the next few weeks as the market reacts to its positive earning results. It also paid its increased quarterly dividend of $0.33 each quarter, for a total $1.32 annual dividend yield.

However, it’s still rising much slower than expected after posting its results, much of which is due to uncertainty in its restructuring efforts. It also faces delays in its next chip that are helping AMD and others gain market share.

Intel’s problem isn’t necessarily its books, which look fine. It’s in a highly competitive technology industry that it needs to continue pushing to stay on the cutting edge of.

Each generation that competition like AMD pulls ahead is another generation where sales are likely to suffer.

The 12-month manufacturing delay on its 7-nanometer chips gives competitors a lead that can last well into the 2020s. This is why some investors are bullish on the company’s growth potential.

But it’s not all bad news – the company still has plenty of room to grow, if its moves pay off.

Will Intel Stock Rise?

Intel’s focused on cost-cutting measures didn’t stop it from shedding 10 percent of its value in after-market trading upon the release of its earnings reports.

This is because of the weakness in its data center business, which saw a drop of 7 percent from analyst estimates of $6.21 for the year, posting only $5.91 billion in revenue.

The average selling price in its cloud division also dropped by 15 percent from the prior year’s quarter.

While Intel is experiencing stagnant pricing, it’s still trending slightly upward. And its PC chips grew revenue on the back of the laptop rush for virtual work and school. Still, its operating margins are shrinking, and it’s going to rely on other manufacturers in Taiwan to compete with AMD as a slimmer company.

The loss of chief engineer Murthy Renduchintala also dinged the company, while AMD gained nearly 2 percent on it.

Is Intel Stock Undervalued? The Bottom Line

Intel is the leading semiconductor chip manufacturer in the world, but it’s slowly losing its edge to competition from AMD and Qualcomm.

Its most recent earnings report shows consumer laptop sales are holding the company above water, as government and large enterprise sales stalled. Meanwhile, it sold off nonessential businesses and reorganized to meet changing market demands.

The biggest problem Intel faces is development delays that are slowing its entrance into the next generation of chips. It’s sluggish sales helped boost the competition, and it needs to come out swinging if it expects to protect its market share.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.