What Is Intel’s Fair Price Estimate Based On Expected 2019 Earnings?

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Intel’s (NASDAQ:INTC) stock price has seen close to A 25% decline over the last month or so. This can be attributed to revised lower guidance for the full year post Q1 results, and the company’s exit from 5G smartphone modems. However, the stock price seems to have some room for further growth, in our view. This note details Trefis’ forecasts for Intel for the fiscal 2019. You can view our interactive dashboard analysis on ~ What’s Driving Our $51 Price Estimate For Intel? ~ for more details on the expected performance of the company. In addition, you can see more of our data for information technology companies here.

What Are The Key Sources of Intel’s Revenue, And How Have They Trended In The Recent Quarters?

  • Intel generates its revenues primarily from four segments: Client Computing, Data Center, Internet of Things, and All Others. Client Computing Group includes revenue from processors and platform products designed for use in notebooks, desktops, tablets, phones, and other mobile communication products. The segment revenues of $37 billion in 2018 accounted for 52% of the company’s total sales.
  • Data Center Group includes sales of processors and chipsets designed for the enterprise, cloud, communications infrastructure, and technical computing segments. The segment generated $23 billion in sales in 2018, accounting for 33% of the company’s total revenues.
  • Internet of Things includes revenue that Intel earns from the sale of platforms designed for embedded applications for medical, automotive, industrial, retail, and other market segments; as well as software-optimized products for the embedded and mobile market segments. It also includes small low-power chips that are used in wearable devices and a range of consumer and industrial products. The segment revenues of $3.4 billion contributed 5% to the company’s top line.
  • All Other Revenue includes revenue from software products for endpoint security, network and content security, risk and compliance, and software products and services that promote Intel architecture as the platform of choice for software development. The division also includes results of operations from Intel’s reported segments including Non-Volatile Memory Solutions Group, Programmable Solutions, and All Others. The segment revenues of $7.4 billion in 2018 accounted for 10% of the company’s total revenues.
  • Total Revenues for Intel have largely trended higher over recent quarters. Revenues grew from $17.1 billion in Q4 2017 to $18.7 billion in Q4 2018. However, they declined to $16.1 billion in Q1 2019, due to lower enterprise sales.

How Does The Revenue Growth of Intel Compare To Its Peers?

  • Intel’s revenues have declined at an average of 0.8% from $17.05 billion in Q4 2017 to $16.06 billion in Q1 2019. Intel’s decline rate was lower than that of Nvidia, but slightly more than that for AMD.
  • AMD’s revenues have declined at an average of 0.2% from $1.34 billion in Q4 2017 to $1.27 billion in Q1 2019.
  • Nvidia’s revenue declined at an average of 4.1% from $2.91 billion in Q4 fiscal 2018 to $2.22 billion in Q1 fiscal 2020.

How Much Can Intel’s Top Line Grow In 2019?

  • Intel’s revenues will likely decline 2.1% to $69.4 billion in 2019.
  • Client Computing Group could see modest decline in sales due to a shortage of chips, as the company focuses on big core over small core chips. Even in Q1 the company saw high single-digit decline in volume for notebooks and desktops. However, that was offset by higher average selling prices. This trend could continue in the near term.
  • Data Center Group could see mid-single-digit decline to $21.6 billion in 2019, as the overall server market could slow this year with expected launch of new processors in the near term. Note that the company is seeing continued growth in cloud business, which is being more than offset by weakness in enterprise sales.
  • Internet of Things Group and All Others could see low single-digit growth, led by better pricing with favorable core mix.
  • Weakness in demand from China and trade tensions between the U.S. and China could impact the overall sales growth for Intel. Note that China and Taiwan combined account for over 40% of the company’s total sales.

How Much Can Intel’s Earnings Grow Based On The Expected Revenue Trends Above?

  • Intel’s full year 2019 earnings will likely be $4.40 per share, reflecting a 4% decline over 2018.
  • Consensus earnings estimate ~ 4.29
  • Earnings decline can be attributed to lower revenues, and expected decline in margins, due to a ramp up in 10-nm chips, partly offset by a lower share count.

What Is Intel’s Share Price Estimate Based On the Above?

  • Our price estimate of $51 for Intel is based on a 12x price to earnings multiple, and earnings of $4.40 per share in 2019.
  • The multiple for Intel valuation is in line with the consensus for the overall sector.

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