Intel: 50 Years of Innovation

09/23/2020 5:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Intel (INTC) remains a a high-quality leading innovator with profitable operations and robust free cash flow, asserts Ingrid Hendershot, a value-oriented money manager and editor of Hendershot Investments.

With over 50 years of continuous innovation and countless technological breakthroughs undergirding it, Intel  now has its sights set on powering new applications like artificial intelligence, quantum computing, 5G, Internet of Things (IoT), autonomous cars and network equipment.

Intel has enjoyed solid growth during the past five years with revenues, net income and EPS compounding at 7%, 17% and 19% annual rates, respectively.

Intel’s business is highly profitable with double-digit profit margins. Intel consistently generates high returns on shareholder equity hovering around 20% for more than a decade, a sign of the company’s durable competitive advantages.

With strong free cash flows totaling more than $63 billion during the past five years, Intel’s capital allocation strategy is to: invest in the business to strengthen its competitive advantage by plowing 20% of revenues into R&D; make strategic acquisitions to spur growth of data-centric opportunities; and return cash to shareholders.

Since 2015, Intel returned $59 billion to shareholders through dividends and share repurchases. The company has paid a dividend in each of the past 112 quarters, a commendable record. The dividend compounded at an average 7% rate during the past five years with the solid dividend currently yielding 2.7%.

On August 17, 2020, given that the stock was trading well below management’s intrinsic valuation, Intel announced an accelerated share repurchase program to buy back $10 billion of its stock.

Intel reported second quarter revenues increased 20% to $19.7 billion with net income increasing 22% to $5.1 billion and EPS increasing 29% to $1.19 on fewer shares outstanding.

Results were driven by strong sales of cloud, notebook, memory and 5G products as digital services and computing performance became essential during the COVID pandemic.

This strong performance was overshadowed by management’s disclosure that its next generation 7-nm central processing unit (CPU) will be delayed by at least six months to mid-2022, stoking concerns that competitors may take market share from Intel.

During the first half, Intel generated $10.6 billion in free cash flow and paid $2.8 billion in dividends. Intel ended the quarter with nearly $26 billion in cash and investments, $36 billion in long-term debt and $82 billion in shareholders’ equity.

Despite the challenges, full year 2020 revenues are projected to be $75 billion with EPS of around $4.53. Long-term investors should consider chipping Intel into their portfolio.

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