Intel (NASDAQ:INTC) launched its 11th generation Tiger Lake chips on Sept. 2. At the same time, it introduced a new logo, only the third change in the chipmaker’s history. Is the new logo the catalyst that shakes Intel stock out of its funk?
I’m being facetious about the logo turning around the stock’s fortunes. Only first-rate products can get INTC back on track. Down 17% year to date, it’s seriously trailing the sector return of 33.8%.
It’s been so long since I last wrote about Intel — Feb. 18 to be exact — I had to think for a moment about whether my editors were asking me to write about the chipmaker or Intuit (NASDAQ:INTU), the maker of TurboTax and QuickBooks.
Seriously, though, since I last wrote about Intel, Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) have seen their share prices increase by 48% and 79%, respectively. Intel’s lost 22%. For those who care, INTU is up 13% over the same period, but I digress.
Can Intel Stock Hit 52-Week High By the End of 2020?
In mid-February, Intel was trading a couple of bucks below its 52-week high. Today, it’s almost 30% below $69.29.
In my February article about Intel, I concluded as follows:
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 [hit] triple digits sometime in 2021. For me, Intel’s a good buy despite its gains over the past year.
Investors saw things differently. With the correction of its stock since the middle of July, it now has to double in price to hit $100, something that’s looking exceedingly difficult.
But it could get back to $60 by the end of 2020, precisely where it started the year. Here’s why.
$60 or Bust
InvestorPlace’s Luke Lango recently discussed why investors should buy Intel stock before it rebounds to $60. That’s despite my colleague pointing out that Intel is losing the race for smaller, faster chips.
“Specifically, while many peers like direct competitor Advanced Micro Devices (NASDAQ:AMD) are pioneering a new era of smaller, faster 7-nanometer chips, Intel is still stuck ramping production of its 10-nanometer line. Worse yet, management has consistently delayed the launch of Intel’s own line of 7-nanometer chips, with the most recent delay pushing back 7-nanometer chip production all the way to late 2022,” Lango wrote on Aug. 31.
“That’s two years away. By that time, AMD and others will be well past 7-nanometer chips, and will likely have moved onto 3-nanometer production.”
To counter the perception Intel is falling behind, Lango points out that the company’s Data Center Group saw sales grow 43% in the second quarter, a point I alluded to in my February article. As long as its data center business continues to do well, I argued, its stock should move higher over the long haul.
So far, that hasn’t happened, but that doesn’t mean investors won’t eventually recognize this achievement.
Further, as my technologically-savvy colleague points out, Intel should generate earnings of $6.50 a share by 2025. By applying an 8.5% discount rate, that gives you a 2020 share price target of more than $60.
The Bottom Line
Intel remains a free cash flow machine. In the trailing 12 months ending the second quarter, Intel had free cash flow of $21.9 billion. Based on a current enterprise value of $234.8 billion, it has an FCF yield of 9.3%. Anything above 8% is generally considered a value proposition.
By comparison, Nvidia has an FCF yield of 1.4% based on TTM FCF of $5 billion and an enterprise value of $350.8 billion.
While I’ve been a fan of Nvidia’s free cash flow generation for some time, as my colleague suggests, it can’t compare to Intel’s ability to generate free cash flow. Not even close.
New logo or not, Intel’s still got a few tricks up its sleeve. Patient capital ought to be all over Intel stock at this point.
I thought it was a buy at $66. It’s definitely a buy at $51 and change.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.
