Foolish Forecast: Intel a Safe Harbor

Got Intel (Nasdaq: INTC  ) inside your portfolio? You are not alone, and the chip giant will be under intense scrutiny when it reports third-quarter earnings tomorrow night.

The second quarter was a doozy, but the main competition is up to some funky tricks since then. So where does Intel stand today?

What Fools say:
Here's how Intel's Motley Fool CAPS rating stacks up against some of its peers and competitors:

 

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating

Intel

$89.8

13.3

 ****

Sun Microsystems (Nasdaq: JAVA  )

$4.1

11.0

 **

NVIDIA (Nasdaq: NVDA  )

$4.4

8.6

 *****

SanDisk (Nasdaq: SNDK  )

$3.7

26.9

 ****

Advanced Micro Devices (NYSE: AMD  )

$2.5

N/A

 **

Data taken from Motley Fool CAPS on Oct. 13, 2008.

I can't find any serious criticism of Intel posted to CAPS since the last report, and only one of the last 100 recommendations was a silent thumbs-down. On the flip side, 91% of nearly 6,000 CAPS players with an opinion have rated the stock "outperform," and those bulls speak up at will:

"Huge dominant survivor at year low," says all-star CAPS member Rep07. "OK, I'll buy." Fellow star player kwill10 notes that "strong companies should outperform in weaker markets."

What management does:
Despite the imploding economy, Intel has been growing important margins alongside tasty revenue improvements over the past year. That's the after-effect of ending a lengthy processor-price war with AMD. It's also a sign of healthy demand for better, faster, cheaper (praeclarus, citius, insumptuosus, in the fading Olympic spirit) computing products even when we can't quite afford them.

Margins

3/07

6/07

9/07

12/07

3/08

6/08

Gross

50.2%

49%

49.8%

51.9%

52.8%

54.7%

Operating

17.7%

18.3%

20.1%

22.8%

23.9%

25.8%

Net

15.1%

15.9%

16.6%

18.2%

17.3%

17.8%

FCF/Revenue

13.1%

16.8%

19.3%

19.9%

22.3%

23.1%

Y-O-Y Growth

3/07

6/07

9/07

12/07

3/08

6/08

Revenue

(7.9%)

(3.1%)

4%

8.3%

10.9%

11.1%

Earnings

(32.1%)

(14.6%)

3.5%

38.3%

27.4%

24.3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
All told, Intel is in excellent shape to face even a long stretch of rough economic waters. The balance sheet is strong like a bull, with $12 billion in cash equivalents and only $2.1 billion of total debt. That should tide 'em over for a while if the $9 billion-plus trailing free cash flow dries up entirely.

Not that AMD will crush its bigger competitor anytime soon, of course. It would take a while for Intel's massive market share to wither away, even under a determined and well-managed attack. Put it all together and add a dash of panic-stricken selling, and Intel looks like a severely undervalued blue chip trading at around 13 times trailing earnings.

Intel's report will help set the tone for the rest of this earnings season. The total meltdown in the financial markets hit too late to affect this report, so I think we'll see healthy business with an international flavor, much like what IBM (NYSE: IBM  ) pre-announced last week. These guys are the closest thing the tech sector comes to a safe harbor nowadays, in stark contrast to underdog AMD.

Intel is a Motley Fool Inside Value pick. NVIDIA is a Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. Or just sign up for a free CAPS account to find the identities of your fellow Fools who were quoted above. They might have more to tell you!

Fool contributor Anders Bylund owns some AMD stock, because he likes livin' on the edge. He holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.


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