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Intel’s (NASDAQ:INTC) stock price has grown around 50% over the last three years or so, led by growth in revenues and margins, partly offset by a slight decline in the price to earnings multiple. We believe this is based on improvements in fundamentals, and do not expect the stock to drop. Below we discuss why Intel’s stock rose, with a focus on each of the revenue, profitability, and other factors that impacted Intel’s share price. You can view our interactive dashboard analysis on ~ Why Did Intel’s Stock Grow 50% Over The Last Three Years? ~ for more details on the expected performance of the company. In addition, you can see more of our for information technology companies here.

Intel’s Stock Price Grew Over 50% From Around $32 By The End of Q2 2016 To Around $50 By The End of Q2 2019, Led By Growth In Revenue, And Margins, Partly Offset By A Modest Decline In P/E Multiple.

#1. Revenues Could Grow 17% From $59.4 Billion In 2016 to $69.4 Billion In 2019. The Biggest Change In Revenue Is Driven By The Company’s Data Center Group, Which Could Grow >25% During The Same Period.

  • 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, , and other communication products.
    • Data Center Group includes sales of processors and chipsets designed for the enterprise, cloud, communications infrastructure, and technical computing segments.
    • Internet of Things includes revenue that Intel earns from the sale of designed for embedded applications for medical, automotive, industrial, retail, and other segments; as well as software-optimized products for the embedded and mobile segments. It also includes small low-power chips that are used in wearable devices and a range of consumer and industrial products.
    • 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 Non-Volatile Memory Solutions Group, Programmable Solutions, and All Others.
  • Client computing group revenues grew from $32.9 billion in 2016 to $37.0 billion in 2018, and it could decline slightly to $36.6 billion in 2019, amid shortage of Intel’s chips for PCs and notebooks.
  • Data center group revenues grew from $17.2 billion in 2016 to $23.0 billion in 2018, and it could decline to $21.6 billion in 2019., amid a slowdown in the enterprise demand of late.
  • Internet of things group revenue grew from $2.6 billion in 2016 to $3.5 billion in 2018, and it could grow to $3.6 billion in 2019.
  • All others revenue grew from $6.6 billion in 2016 to $7.4 billion in 2018, and it could grow to $6.5 billion in 2019.

#2. Net Income Grew At A Higher Pace Compared To Intel’s Revenues, Led By Margin Expansion.

  • Intel’s net income grew from $13.2 billion in 2016 to $21.5 billion in 2018, and an estimated $19.8 billion in 2019.
  • This can be attributed to higher revenues and growth in net income margin.
  • Net income margin grew from 22.3% in 2016 to around 30.4% in 2018, and we forecast it to be 28.6% in 2019.

#2.1 Total Expenses Could Increase From $43.5 Billion In 2016 To $47.7 Billion In 2019. However, Total Costs As A Percentage of Revenue Have Seen A Decline.

  • While Intel’s total expenses grew from $46.5 billion in 2016 to $47.5 billion in 2018, and an estimated $47.2 billion in 2019, total expenses as % of revenue declined from 73% in 2016 to 66% in 2018, and an estimated 69% in 2019.
  • COGS as % of revenue declined slightly from 39.1% in 2016 to 38.3% in 2018, and it is estimated to increase slightly to 38.8% in 2019. R&D as % of revenue declined from 21.5% in 2016 to 19.1% in 2018, and it is estimated to be18.9% in 2019. SG&A as % of revenue declined from 14.1% in 2016 to 9.5% in 2018, and it could grow slightly to .3% in 2019.
  • Other operating expenses as % of revenue has been declining gradually from 3.7% in 2016 to 0.2% in 2018, and it is estimated to be at around similar levels in 2019. Interest & other expenses as % of revenue has been more or less around 0, and we don’t expect any significant change, as interest expenses are offset by interest and other income.
  • Effective tax rate has fluctuated in the recent years. It grew from 20% in 2016 to 53% in 2017, reflecting the impact of tax bill. It fell to 10% in 2018, and it is estimated to be 13% in 2019.
  • Non-GAAP adjustments as % of revenue grew from -4.9% in 2016 to -0.7% in 2018, and it is estimated to be -0.8% in 2019.

#2.2 EPS Has Also Seen Steady Growth, Led By Revenue & Margin Growth, And Lower Share Count.

  • EPS grew from $2.72 in 2016 to $4.58 in 2018, and it is estimated to be $4.40 in 2019.
  • The growth in the past can be attributed to higher net income, driven by higher revenues and margin expansion, as discussed above, while lower data center revenues and increased expenses could impact the 2019 earnings.
  • No. of shares declined from 4.9 billion million in 2016 to 4.7 billion in 2018, and an estimated 4.5 billion in 2019.

#3. Price To Earnings Multiple for Intel Has Slightly Declined.

  • Intel’s price to earnings multiple declined slightly from 11.8x in 2016 to 11.4x in 2019, based on 2019 expected earnings.
  • We used the stock prices at the end of Q2 each year to derive the price to earnings multiple.

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