- Intel is well positioned to take on a significant role in the development of chips for autonomous cars.
- Intel is among the first companies to develop the required chips for this promising market.
- The average target price of top analysts is at $38.36. However, in my opinion, shares could go higher than that.
Intel Corporation (NSDQ:INTC), once a high growth company, has in the last few years seen its revenue and earnings-per-share (EPS) growing at a disappointing rate. The company's average annual sales growth over the last five years was at 4.9%, and the average EPS growth was only 3.0%. Moreover, the average annual estimated EPS growth for the next five years is also low at 5.0%.
Intel's Annual Growth Rates
While PC sales have continued to decline, Intel has missed the mobile revolution. Those factors have caused the company's growth rates to fall.
In my previous article about Intel, I suggested that Internet of Things (IoT) could be the next growth driver for Intel stock. However, I find that the development of autonomous vehicles could be an even more promising area of growth for the company.
In an announcement on July 01, BMW Group, Intel and Mobileye (NYSE:MBLY) said that they are joining forces to make self-driving vehicles and future mobility concepts a reality. According to the announcement, the three leaders from the automotive, technology and computer vision and machine learning industries are collaborating to bring solutions for highly and fully automated driving into production by 2021.
The three companies, which are convinced that automated driving technologies will make travel safer and easier, explained:
"The goal of the collaboration is to develop future-proofed solutions that enable the drivers to not only take their hands off the steering wheel, but reach the so called “eyes off” (level 3) and ultimately the “mind off” (level 4) level transforming the driver’s in-car time into leisure or work time. This level of autonomy would enable the vehicle, on a technical level, to achieve the final stage of traveling “driver off” (level 5) without a human driver inside. This establishes the opportunity for self-driving fleets by 2021 and lays the foundation for entirely new business models in a connected, mobile world."
According to J.P. Morgan, the total available market for semiconductors used in semi-autonomous and fully autonomous vehicles will reach about $7.3 billion by 2025. This represents an annual growth rate of more than 60%. That projection is based on an annual world production of about 110 million light vehicles, about 15.7% of them would be semi-autonomous and fully autonomous vehicles.
Intel is well positioned to take a significant part in this market. In contrast to the mobile market where Intel was late to join, this time, it is among the first companies to develop the required chips for this promising market.
Intel Stock Performance
The Intel stock has underperformed the market in the last few years. Year to date, the INTC stock is up 4.2% while the S&P 500 index has increased 6.2%, and the NASDAQ Composite Index has gained 4.1%. Moreover, since the beginning of 2012, Intel stock price has gained only 48%. In this period, the S&P 500 Index has increased 72.6%, and the NASDAQ Composite Index has risen 100.1%. According to TipRanks, the average target price of the top analysts is at $38.36, representing an upside of 6.9% from its August 31 close price. However, in my opinion, shares could go higher than that.
The table below compares some important Intel parameters to some of its competitors. Considering its valuation metrics, Intel stock is cheaper than its peers. Intel's trailing P/E at 17.34 and forward P/E of 14.30 are the lowest in the group. Also, its price to sales and price to book value ratios are the lowest. What's more, Intel's Enterprise Value/EBITDA ratio at 7.99 is significantly lower than those of its competitors. According to James P. O'Shaughnessy, the Enterprise Value/EBITDA ratio is the best-performing single value factor. In his impressive book "What Works on Wall Street," Mr. O'Shaughnessy demonstrates that 46 years backtesting, from 1963 to 2009, have shown that companies with the lowest EV/EBITDA ratio have given the best return.
Dividend And Share Repurchases
In its latest quarter, the company generated approximately $3.8 billion in cash from operations, repurchased $804 million in stock, and paid $1.2 billion in dividends. Intel has been paying uninterrupted dividends since 1993. The forward annual dividend yield is pretty high at 2.90% and the payout ratio is only 46.9%. The annual rate of dividend growth was 3.3% over the past three years, 8.8% over the past five years, and a high 11.6% over the last ten years.
Source: company’s reports *assuming same dividend rate for the year
Intel, once a high growth company, has seen its revenue and earnings-per-share growing at a disappointing rate in the last few years. However, as I see it, the development of autonomous vehicles could be a promising area of growth for the company. Intel is well positioned to take a significant part in this market. In contrast to the mobile market where Intel was late to join, this time, it is among the first companies to develop the required chips for this promising market.
Considering its valuation metrics Intel's stock is cheaper than its peers. Intel's Enterprise Value/EBITDA ratio at 7.99 is significantly lower than the rates of its competitors. Moreover, the company generates strong free cash flow and returns substantial capital to its shareholders by way of stock buybacks and increasing dividend payments. The average target price of top analysts is at $38.36, indicating an upside of 6.9% from its August 31 close price. However, in my opinion, shares could go higher than that.