Intel (NASDAQ:INTC) stock has been among the major under-performers from the technology sector. During the last 12-months, the stock has remained sideways.
However, it seems very likely that INTC stock is poised for a trend reversal. This column will discuss the potential catalysts for 2022.
In terms of valuation, INTC stock currently trades at a forward price-to-earnings-ratio of 9.8. The stock clearly seems undervalued with the S&P 500 index trading at a cyclically adjusted P/E ratio of 38.3.
Of course, there have been growth headwinds for Intel and that’s the reason for the stock remaining depressed. I however believe that the company is taking corrective measures, which will show in the form of growth upside.
In a recent news, Intel announced the intent to take Mobileye public. It’s worth noting that Mobileye is positioned for 40% revenue growth in 2021 as compared to 2020. With the latter being a market leader in driver-assistance and autonomous driving solutions, healthy growth is likely to sustain in the coming years.
It’s being estimated that the public offering is likely to value Mobileye at more than $50 billion. Intel plans to retain majority stake. I believe that the potential listing will unlock value.
The company’s CEO, CEO Patrick Gelsinger, believes that the self-driving car unit will be comparable to Elon Musk’s Tesla (NASDAQ:TSLA) in the “tech-heavy future of the auto industry.” This is clearly bullish in terms of potential valuation upside for Mobileye.
It’s important to note that Intel has a market capitalization of $213 billion. Mobileye will therefore command a valuation that’s at least 25% of Intel’s market capitalization.
Once there is progress on the listing plans, INTC stock is likely to trend higher.
Investments and Innovation
In September 2021, Intel announced the initiation of construction for two new chip factories in Arizona. The company will be investing $20 billion in these factories.
Additionally, Intel has guided for capital expenditure of $22 to $25 billion for 2022. The company believes that investments can be further scaled-up beyond the next year.
The big investment line-up is likely to translate into revenue and earnings growth over the next few years.
It’s also worth noting that Intel has been a laggard on a relative basis when it comes to innovation. That’s likely to change in the coming quarters. In Q1 2021, Intel will be launching the next generation discrete GPU for gaming. The line-up of innovation also includes Intel’s first ASIC-based IPU.
Intel has also been bullish on silicon photonics. The company believes that it can help in moving “information at light speed in datacenters and beyond.”
Intel recently launched an integrated photonics research center. The mission is to “pave the way for the next decade of compute interconnect.”
From a financial perspective, the following points are worth noting.
First, Intel reported cash and equivalents of $7.9 billion for Q3 2021. Additionally, the company has $4.0 billion in short-term investments. With a total cash buffer of nearly $12.0 billion, the company is well positioned for aggressive investments.
Further, for the first nine months of 2021, Intel reported operating cash flow of $24.2 billion. This would imply an annualized OCF of $32 billion. Therefore, even with a big investment target for the next few years, Intel is likely to remain free cash flow positive.
This is important to mention as Intel expects to increase dividends in the coming years. Considering the growth projects and cash flow visibility, INTC stock is worth holding for dividend investors.
Intel seems to be fighting back from the perspective of innovation. At the same time, the global chip shortage creates an opportunity for growth. With Intel investing heavily in the new manufacturing facility, the results are likely to show in the next few years.
Considering the potential growth from investments, dividends and spin-off of Mobileye, INTC stock is a screaming buy at a forward P/E of less than 10.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.