Thanks to the Wintel alliance, Intel (INTC) has been a dominant force in the personal computer space. Research firm Gartner stated that the chipmaking giant was the world’s No. 1 semiconductor vendor by revenue in 2020. Intel had a 15.6% market share in 2020, while the No. 2 vendor Samsung had a share of 12.5%. However, Intel has had a rough journey lately.
INTC stock is down almost 30% from its peak early last year, with slowing growth and a number of underwhelming earnings reports putting investors on watch.
Can this company grow out of this funk, or will investors move on? I remain slightly bullish on this stock; here’s why.
A Fundamental Analysis of Intel
Intel is what’s most commonly known as a legacy stock when it comes to chip manufacturers. This company’s market share has declined considerably, with competitors like Nvidia (NVDA) and AMD (AMD) gaining market share, particularly in the high-end computing market.
This has put pressure on Intel’s margins, which have been certainly under siege in recent quarters.
In Intel’s most recent earnings report, the company did note revenue of $20.5 billion, which did beat guidance by $1.3 billion and was 3% higher on a year-over-year basis. That said, compared to its competitors, it’s clear that Intel’s days of double-digit revenue growth may be limited. Additionally, the company’s GAAP revenue hit an all-time high but was again up only 1% over the previous year.
On the bottom line, Intel did earn $1.13 per share, leading the company to increase its dividend by 5% for this year.
Overall, these aren’t terrible numbers. However, given the chip shortage we’ve seen plague the global electronics market, one might have expected higher revenue numbers. As a major player in this space, it remains unclear if Intel can enact its pricing power on the market. Currently, it appears most of the pricing power lies with the company’s competitors right now.
That said, Intel’s balance sheet remains strong, and this is a company that pays a meaningful dividend. Intel’s ~3% yield is one of the key reasons long-term investors look at this stock, given the stability of this chip manufacturer’s cash flows.
Anything could happen, and these cash flows are certainly not iron-clad. Competition remains strong, and there are significant risks over the medium-term investors are taking with Intel.
However, from a total return perspective, it’s hard to ignore this top dog, which appears ready to post more record numbers in 2022.
Chip Delays Could Continue to Be a Headwind
One of the key headwinds that have plagued INTC stock in the past has been production delays. In previous years, these production issues have allowed competitors to come in and take market share. In this space, market share is a key factor investors consider. In this regard, investors have been somewhat disappointed.
That said, the company is continuing to make progress in innovating forward. The company’s 7-nanometer chips are one example. Additionally, the company announced plans to spend $20 billion on building two new semiconductor fabs in Arizona. Other foundry projects in the U.S. and Europe have bolstered investors’ confidence over the medium term.
The question investors have now is whether Intel has what it takes to dominate over the long run. That’s perhaps where many investors get lost with INTC stock right now.
Wall Street’s Take
Turning to Wall Street, Intel stock comes in as a Hold. Out of 20 analyst ratings, there are six Buy recommendations, nine Hold recommendations, and five Sell recommendations.
The average Intel price target of $55.11 implies 14.1% upside potential. Analyst price targets range from a high of $72 per share to a low of $40 per share.
Bottom Line
As Intel continues progressing towards regaining its former glory as the industry leader, the upcoming five years will prove to be pivotal. The cost structure of Intel is anticipated to experience pressures through to 2023. The growth catalysts featured within the semiconductor segment would underpin the company’s growth trajectory over the upcoming five years.
That said, this stock is one that continues to generate impressive cash flows and deliver a meaningful dividend to investors. Those looking for more defensive bond-like equities may want to give INTC stock a look here.
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