Intel (NASDAQ:INTC) is currently sitting around $66, more than two dollars under its 52-week and about nine dollars off its all-time high around $75. Up more than 11% year-to-date, though, can Intel stock go higher?
I think it can, and here’s why.
Free Cash Flow Is Strong
In October 2019, I argued that Intel’s free cash flow generation made it a buy. Since then, Intel stock is up 26% and pushing to levels that haven’t been seen in 20 years.
Based on trailing 12-month free cash flow (FCF) of $16.9 billion and an enterprise value of $303.6 billion, it has a FCF yield of 5.6%. Generally, anything above 8% is in value territory.
By comparison, here are the FCF yields for three of its largest competitors:
FCF Yield for 3 of Intel’s Largest Competitors
|Company||Free Cash Flow (TTM)||Enterprise Value||FCF Yield|
|Texas Instruments (NASDAQ:TXN)||$6B||$123.6B||4.9%|
|Advanced Micro Devices (NASDAQ:AMD)||$280M||$63.9B||0.4%|
Despite having gone on a big run in the past six months — up 40% since Aug. 19 — Intel remains one of the best values in tech.
In addition to its value-leaning FCF yield, the fact that its dividend yield is still around 2% despite recent gains means investors will still get paid to wait for its next leg up. Sure, the same can be said about both Broadcom and Texas Instruments. But, these aren’t the only reasons to like Intel stock.
Repurchases of Intel Stock Continue
InvestorPlace contributor Mark Hake recently highlighted the fact that Intel bought back 5% of its stock in 2019. Furthermore, over the past five years, it reduced its share count by almost 10%.
The average price paid by Intel for the 271.7 million shares it bought back in 2019 was right around $50 per share. So, based on Intel’s current share price, that’s about a 32% return on its investment. Additionally, given Intel intends to repurchase another $20 billion in share count over the next 15-18 months, investors can expect its earnings per share (EPS) to increase based on these share repurchases alone.
As Hake further points out, Deutsche Bank analysts believe that the company’s forecast for 2020 revenue of $73.5 billion and adjusted earnings per share of $5 could be conservative, offering investors “a positive risk/reward within an otherwise expensive semiconductor sector.”
Collectively, Intel continues to take advantage of the data revolution that’s gripped computing.
“Exiting this quarter, we now have greater than 50% of our revenue coming from our data-centric collection of businesses, but our journey is just beginning,” CEO Robert Swan stated in its Q4 2019 conference call in January. “To reach our multi-year goals, we will continuously focus on three key priorities; accelerating growth, improving execution and deploying our capital for attractive returns.”
Swan went on to say that Intel’s Xeon Scalable processors continue to generate strong demand from its customers as they move to become more dependent on artificial intelligence and big data.
As Intel continues to capture a bigger chunk of data-centric revenue, you can be sure that the Intel stock price will continue to move higher.
Bottom Line on Intel Stock
InvestorPlace contributor Chris Lau recently discussed how Intel’s Mobileye acquisition continues to pay dividends for the company in the advanced driver-assistance systems (ADAS) market.
I’m not usually a proponent of large, splashy acquisitions. But since Intel paid $15.3 billion for the Israeli tech company in 2017, Mobileye’s revenues have grown by more than 30% on a compound basis.
As it continues to grow its data-related businesses, I see Intel stock continuing to move higher. While it won’t hit $100 in 2020, its growth-at-a-reasonable-price (GARP) valuation suggests that it could triple digits sometime in 2021.
For me, Intel’s a good buy despite its gains over the past year.
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.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.