Welcome back to Dividend Dollars. In this post we will discuss Intel (INTC) and how it is potentially undervalued and currently presents a good buying opportunity. Spoiler alert: I bought INTC today.
Intel is an American (headquartered in Santa Clara, CA) multinational corporation and tech company. They are a HUGE semiconductor chip manufacturer and is the developer of one of the most popular lines of computer processors on the market. Their microprocessors are supplied to computer companies such as Dell, HP, and Lenovo (I’m writing on a Lenovo right now, great computer). Intel also produces motherboard chipsets, graphics cards, and nearly any other device you can think of related to communications and computing. In 2020, they had a net income of $20.9 billion dollars.
Q3 2021 Earnings Overview
Intel released their Q3 2021 earnings on 10-21-2021 and it was not received well by the market. Share price has dropped by nearly 15% at the lowest since the earning report was released. Current INTC price is $48.18 down from $56 prior to the earnings. Following the earnings, a handful of analysts downgraded their ratings on the stock.
In the earnings report, earnings per share increased by 58% from what it was a year ago, and it increased by 34% from last quarter. These earnings were ahead of most estimates. INTC reported a revenue of $18.1 billion which was 1% below market consensus but above the prior quarter. Overall, the earnings show they are a cash cow with a good and healthy balance sheet but the market seemed to react more strongly to the bad sentiment surrounding Intel and their operations. INTC continues to be plagued by a broken supply chain which is hampering sales and the semiconductor industry continues to get more and more competitive as key players improve and introduce new chips. INTC is moving in the correct direction to combat this. They announced earlier this year that they will be investing $20 billion dollars to build two new chip plants in Arizona which will help with these manufacturing/supply chain issues in the future. This quarter’s earning report shows that they have more than enough cash on hand to handle this investment while continuing to pay healthy dividends.
My Response to the Report
In my opinion, a 15% drop on these earnings is an overreaction which provides us with a good opportunity to buy. We love the discount! INTC, unlike IBM or other legacy tech companies, is not slowing down and the quarterly earnings show this. INTC’s dividends are well covered by their revenue which is poised for growth.
Now let’s dive into INTC’s stats as I like to do with my monthly stock picks. If you haven’t read one of those yet, please do so with this link, it explains my stock pick criteria in case you need to understand the reasoning and jargon here. INTC has a P/E ratio of 9.3 (this is slightly lower than the P/E ratio range I like to see), they have a payout ratio of 26.64%, they have 7 years of consecutive dividend growth (a little shorter than the 10 years I like), a dividend yield of 2.89% (close to the 3% I like to see), and a great D/E ratio of 4.3. While these stats don’t quite meet up with my stock pick criteria, I still really like the outlook of Intel and their attractive dividend.
In addition to all this good news and stats, there was a decent chunk of insider buying from INTC executives recently. Intel’s CEO and four members of the board of directors bought about $2.5 million dollars’ worth of shares on 10/25. That is the largest number shares bought by insiders in a single day since March of 2020. Funny enough, at the time of the previous large insider purchases INTC was near $46 a share, not too far from where it is now.
INTC’s chart also looks good. The past 4 years has built a solid support level around the $45 mark. We could see shares drop to that level and below to $43, but I wouldn’t be surprised if it bounces sooner. Time and time again, INTC has bounced as it touches the lower keltner channel and it is touching it right now. The keltner channel support in addition to its approach to the support level at $45 makes me confident in a bounce.
I believe INTC’s recent drop in pricing following their Q3 2021 report was an overreaction in the market. But that overreaction has provided us with a great opportunity to buy some discounted shares. INTC may be behind the curve relative to other comparable chip companies, but Intel is poised for success with a wide line of products in a fast-growing market that has a desperate need for expansion in order to accommodate industry demand. Intel is taking steps to meet that demand, their financials remain strong, their dividends are healthy, and insiders are showing their support with their wallets.
So, how do you catch a falling knife like INTC? With a steel glove. I picked up INTC at $47.96 and plan to hold for the long term and rake in those dividends! INTC, as of today, pays $0.3475 per share every quarter. The Ex-Date for the next dividend is 11/04/2021.
As always, do your own research, leave comments, ask questions below, and thank you for reading!