Can Intel Corporation Stock Hit $100?

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Intel Corporation (NASDAQ:INTC) closed Dec. 15 trading at $44.56, 11% below $50 and within 6% of a five-year high. It’s having a solid year — it’s beating S&P 500 by almost 400 basis points with less than two weeks left in the year — and investors are probably wondering what comes next for INTC stock.

Forget $50.

Let’s talk about what Intel has to do to get to $100, and triple digits, something only 174 other S&P 500 stocks have accomplished as of Dec. 15.

Why $100?

Well, as I said, a triple-digit stock price is something special, something the INTC stock price has never come close to hitting. Its all-time high of $75.81 was set in August 2000.

To shoot for $100 is definitely a very audacious goal, one that needs help from the markets in general. Any significant correction, and INTC stock doesn’t have a chance.

What Does It Need to Do?

Several things stand out for me, not the least of which is that Intel must continue to grow earnings and margins at a decent rate.

In August 2000, when Intel hit its all-time high, the company was working on its best year ever with $10.5 billion in net income (44% year-over-year growth) on $33.7 billion in revenue (15% YOY growth).

Of course, the wheels fell off the very next year as the entire tech industry went through a significant bloodletting, but anytime you grow the top and bottom line as impressively as Intel did in 2000, you’re going to see a double-digit increase in the share price.

How Does 2000 Compare to Today?

Interestingly, there are a few similarities.

The first thing that’s not too different almost two decades later is gross margins. In 2000, it was 62.5%; in 2016, it was 60.9%; and through the first nine months of 2017, it’s 61.9%, or just 60 basis points less. 

The bad news is that farther down the income statement, its operating margin for the trailing 12 months is 27.5%, 340 basis points lower than in 2000, thanks in large part to higher R&D spending as a percentage of revenue.

However, even though revenues in 2017 are growing in the single digits, the company’s bottom line on a GAAP basis is expected to increase by 38.2% to $2.93 a share. Also, free cash flow as a percentage of 2017 TTM revenue is 19.0%, 60 basis points higher than in 2000.

Valuation: Then and Now

At its all-time high in August 2000, INTC stock was trading at 50 times its annual earnings per share of $1.51. At the Dec. 15 closing price of $44.56, INTC was trading at 15 times its GAAP outlook of $2.93 for the entire year and 13.7 times its non-GAAP fiscal 2017 estimate of $3.25.

Today, you can buy INTC stock at a multiple that’s 70% lower than in 2000, yet except for its Client Computing Group achieving zero growth in 2017, the rest of its business units, which includes data centers and the Internet of Things, are experiencing healthy sales increases and margin expansion.

The problem is that analysts don’t see much growth in earnings in fiscal 2018 and 2019, up a penny and 13 cents respectively to $3.25 and $3.38 a share.

At its current multiple, it won’t even come close to shattering its all-time high.

A $100 INTC Stock Price Is a Pipe Dream

The highest 12-month price target by analysts for INTC stock is $58, a far cry from $100.

To get to $100, it’s going to need some multiple expansion, say to 25 times earnings, along with $4 in EPS. I’d say the earnings per share could hit $4 within 3-5 years, but the multiple expansion is going to be tough given it hasn’t been valued so dearly since 2009.

You might want to forget about a $100 stock price for at least the next 2-3 years and be happy with double-digit returns.

As InvestorPlace contributor Tom Taulli recently wrote: “The valuation remains at reasonable levels, with the forward price-to-earnings multiple of 13X. In fact, this makes it one of the cheapest plays on the chip sector.”

It does indeed.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/12/can-intel-stock-hit-100/.

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