Sunday, January 17, 2016

Intel Corp - A Slowing, Decent Business

Last Friday Intel announced its 4Q 2015 results. These results confirm the fact that the company is a stagnant business - please, look at the chart below:

As the chart shows, since 2010 the company has been reporting rather stagnant Nopat (defined as net operating profit after tax).

 What is more, the stagnation in Intel operations is best seen at the chart below:

The chart shows one of the best indicators of a company's financial strength - return on invested capital (ROIC). As the chart shows, since 2010 Intel has been delivering lower returns. In other words, the company was allocating its capital into the assets delivering smaller growth.

Well, in my opinion, it is nothing wrong - at some point any company meets some setbacks or simply put, it is not able to find interesting growth opportunities any longer. Intel is such a case.

However, the company's management is, in my opinion, an investor-friendly group of people. Encountering growth limits, they repurchase Intel shares and pay decent dividends. Since 2010 Intel:

  • paid $25.4 billion in dividends
  • spent $37.4 billion on share repurchases

Investors have been buying this strategy. Although the company was reporting lower ROIC and weaker Nopat, Intel share prices were going up:

What is more, the company's shares were stronger than Dow Jones Industrials:

I think we are close to another bear market in stocks but Intel should sustain its relatively better performance against the broad stock market.

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