Intel Corporation: Why INTC Stock Could Surge 30%

INTC StockIntel Corporation (NASDAQ:INTC) stock is one of the most profitable and shareholder-friendly companies in the chip industry.  INTC stock is also one of the best global brands worldwide.

The company’s brand value increased four percent and is now ranked 14th on Interbrand Corporation’s list of 100 best global brands for 2016. (Source: “Intel Increase Brand Value for 2nd Consecutive Year on Interbrand’s Best Global Brand List,” Intel Corporation, October 5, 2016.)

Intel Stock is Financially Strong

In fiscal 2015, Intel stock generated a net income of $11.4 billion and earnings per share (EPS) of $2.33. INTC stock’s revenue was $55.4 billion. The company returned $4.6 billion in dividends to shareholders and repurchased 96 million shares of stock worth $3.0 billion.

During the second quarter of 2016, Intel stock posted non-generally accepted accounting principles (GAAP) net income of $2.9 billion and earnings of $0.59 per share. Intel stock’s revenue was $13.5 billion. The chip-maker’s quarterly earnings topped the $0.53 expected by Wall Street analysts. Its revenue was in line with the expectations. Intel stock distributed $1.2 billion in dividends to shareholders and repurchased 26 million shares of stock worth $804.0 million. (Source: “Intel Reports Second-Quarter Revenue of $13.5 Billion,” Intel Corporation; July 20, 2016.)

Intel’s robust financial performance is a testament that INTC stock is a good investment, and it is resilient amid the persistent challenges in the personal computer (PC) market. The chip-maker generates the majority of its revenue from its “Client Computing Group,” which delivered $7.3 billion of revenue in 2Q, down three percent year-over-year. The strength of the “Data Center Group,” “Internet of Things Group,” and “Intel Security Group” offset the weakness of its computing business.

Intel stock is financially healthy. The company’s total assets were $109.83 billion compared with total liabilities of $48.46 billion, and its total cash balance was $17.7 billion by the end of the second quarter. The company’s cash from operations was $3.8 billion. The company’s high level of free cash flow enables it to invest in its business and return cash to investors.

INTC Stock to Benefit from Data Centers

One of the key growth drivers for INTC stock is its Data Center Group, which achieved a five percent increase in revenue year-over-year. The business is growing fast, representing 29% of the company’s total revenue last year. (Source: “Form 10-K,” Securities and Exchange Commission, February 12, 2016.)

During the company’s second-quarter earnings call, Intel CEO Brian Krzanich noted the growing momentum of the data center business, citing the fact that the average selling prices of its microprocessor products (“Atom” and “Xeon D”) increased annually to the high end. Intel is also gaining market share in network infrastructure. The Intel architecture is becoming the solution of choice for the transformation to SDN, NFV, and 5G networks.

Intel also continues to ramp up the shipment for its “Xeon Phi” accelerator. Its revenue from the product increased eight times in the first six months of this year. Xeon Phi is gaining significant share in the supercomputing and machine learning markets. Additionally, the company’s high-performance computing fabric, “Omni-Path,” already obtained 30% share in the 100-gig fabric market since its launching earlier this year.

Krzanich estimated that Intel’s data center’s adjacent product lines would attain more than 20% growth collectively this year.

Intel Expanding in Drone Market

Intel continues to expand its business and pursue opportunities in fast-growing markets including the commercial drone segment. The tech giant recently unveiled its “Falcon 8+” commercial drone for North American clients.

The Falcon 8+ is designed to set a new standard for commercial-grade drones, as it is integrated with best-in-class onboard sensors, fully electronic system redundancy, and automated aerial-sensing solutions. The drone is powered by “AscTec Trinity” autopilot, provides detailed images down to millimeter accuracy, and has valuable structural analysis to help users detect and prevent further damage to infrastructures.

Aside from the Falcon 8+, Intel previously introduced the “Yuneec Typhoon H,” its first consumer drone integrated with “Intel RealSense” technology for intelligent obstacle navigation. It also launched the “Intel Aero” platform to enable developers to build drones. (Source: “Intel Announces Commercial Drone, Intel Falcon 8+ System,” Intel Corporation, October 11, 2016.)

The tech giant aims to lead in the drone market, which is expected to grow to as much as $127.0 billion by 2020, according to PricewaterhouseCoopers. (Source: “Global Market for Commercial Applications of Drone Technology Valued at over $127 bn,” PwC, May 9, 2016.)

Companies in different industries including agriculture, construction, film, insurance, real estate, and shipping see significant benefits for using drones. The drone market is a lucrative revenue stream that could help strengthen Intel’s growth and profitability in the years ahead.

The Bottom Line for INTC stock

There is no doubt that Intel is a superior company that can offer generous returns to investors. It is one of the few corporations that pays a dividend to shareholders in the semiconductor industry. The company’s quarterly dividend is $0.26 per share, or $1.04 per share on an annual basis. Its dividend growth was 8.79% over the past five years.

Intel’s stock price climbed from $27.68 per share to as much as $38.36 per share over the past 52 weeks. INTC stock gained more than 15% over the previous year.

Wall Street analysts believe that the company will continue to outperform the market, and they have predicted that INTC stock could trade as high as $49.00 per share—an upside of over 31%—over the next 12 months.