Intel Corp has posted three successive down quarters in terms of revenue growth and as a result, INTC stock has been drifting lower. But now the stock is starting to look interesting here and could be approaching good value.
Back on March 11, 2021, I wrote that Intel was overvalued in my article, “Buy INTC Stock When It’s Hated Most, Not Now.” At the time, the stock was at $63.82 and it later peaked at $68.26 on April 9.
It hit a trough at $47.89 on Oct. 27. But now, as of Dec. 13, INTC stock has drifted down to $50.38 per share. So 7 months after the stock peaked, it is finally starting to rebound. I believe that is because the company’s future is starting to look brighter, at least after next year.
Where Things Stand With Intel Corp
The reason is next year analysts project lower revenue and earnings compared to 2021 (and 2021 will be below last year). For example, this year earnings per share (EPS) might fall from 8.7% to $4.51, based on the average earnings forecast of 19 analysts surveyed by Seeking Alpha.
Moreover, for 2022 there are 22 analysts who expect EPS to fall to $3.41, or over 24% year-over-year (YoY). In fact, analysts don’t expect EPS to inch up until 2023 when it hits $3.52. And then by 2024, they foresee a slight gain to $4.05 in earnings per share.
But at least now there is some sort of turnaround in sight. Earlier this year, the market was rising on false hopes that it would rebound sooner.
Maybe it has taken some time for the new CEO, Pat Gelsinger, who started in February, to get his footing. He has had to put together a strategy to turn the company around. Moreover, both analysts and the board of directors have taken their time to warm up to his plans.
For example, he used to be the chief technology officer for the company but he left in 2009 after being passed over for the CEO job. Now he has to take on the company’s manufacturing issues.
At first, analysts had faith in the CEO’s ability to take on competitor Advanced Material Devices (NASDAQ:AMD) and its process technology. But recently, at least one analyst, Ambrish Srivastava, of BMO Capital Partners, is having second thoughts, according to Barron’s magazine.
His concerns are that the company’s huge capital spending plans in the process of its turnaround will be expensive. It will not lead to Intel producing free cash flow (FCF) growth for a while. He also feels that the company’s plans to grow its revenue line by over 10% are not believable.
Where This Leaves INTC Stock
One reason why INTC stock looks to be undervalued is its dividend yield. Right now, Intel pays an annual dividend equal to $1.39 per share. That gives it a yield of 2.75%. However, every four quarters, the company tends to announce a quarterly increase.
Intel last announced its latest quarterly dividend on Sept. 16. That implies that sometime this coming month, in early January, Intl may announce a quarterly dividend increase for the next four quarters. Last year it increased the dividend on Jan. 16 from 33 cents quarterly to 34.75 cents or 5.3%.
Even if the dividend rate increase is only half of that or 2.5%, the new dividend per share (DPS) would be $1.425 annually. So, at today’s (Dec. 13) of $50.38, the dividend yield will be at least 2.75%. That is higher than the last couple days.
However, from a historical standpoint, INTC stock has a much higher yield than in the past. For example, Seeking Alpha has a page that shows that the average yield in the past 4 years has been 2.4%.
What INTC Stock Is Worth
We can use this to value INTC stock. For example, if we divide the conservatively estimated new dividend of $1.39 by 2.4%, we get a price of $58 per share. That represents a potential gain of $8.79 per share, or 17.4% (i.e., $8.79/$50.38 price today).
Moreover, if the board of directors decides to raise the DPS by its historical 5% rate, the new rate will be $1.46 per share. Therefore, assuming the stock trades at its historical 2.4% yield, the price target will be $60.83 per share next year. That represents a potential upside of 20% for the stock. This is why INTC stock is starting to look very cheap here today.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.