Intel: Of Marketing and Value

Intel (NASDAQ:INTC) decided that its new year's resolution would involve a new logo as well as a new tagline. To try to reinvigorate itself in the marketplace, Intel is updating its message about its brand. Branding is very important, especially when a new product is being pushed (in this case, the Intel Viiv technology).

An initiative such as this is vital, because advertising drives sales and programs a beneficial image into consumers' heads. But it isn't why you'd buy Intel for your portfolio. One must take a look at its financials and ratios, so let's investigate.

Not to sound biased, but articles published on The Motley Fool can serve as nice starting points for research. In fact, here's one by Tim Beyers I'll quote from because he talks about one of the best tools an investor can use to check on a company: its ability to generate free cash flow. Intel took in more than $9 billion in operational cash in fiscal 2002 and had $4.4 billion of free cash left over after capital expenditures took their bite; in fiscal 2003 and 2004, there was more than $11 billion and $13 billion in operating cash flow and $7.8 billion and $9.7 billion of free cash flow, respectively. That's a mighty fine trend.

So we know the company is creating free-cash value for shareholders. But, how do some of its valuation and effectiveness ratios look today? Checking good ol' Capital IQ data reveals some promising statistics. Return on equity is 22%, and return on assets is 15%. Operating margin is more than 30%. The profit margin is above 20%. Total debt/equity ratio is insignificant. Best of all, the PEG ratio is at 1.17 -- for a company like Intel, that's not bad, especially when one considers that Microsoft (NASDAQ:MSFT) is getting ready to release its long-awaited Vista operating system this year. If the PC-buying public takes to that product and decides that it's time to upgrade their machines, Intel obviously stands to benefit a whole bunch. (In addition, consider that with so much cash on corporate balance sheets, businesses' investments in productivity-enhancing IT systems might also boost Intel's sales.)

A successful branding campaign should be a huge positive over the next several years; it can be tough for companies to continue to bring in the cash without refreshing their appeal along the way. Intel has proven that it is a competent partner in the "Wintel monopoly," and that it can get people excited about its technology portfolio. Going forward, one would expect free cash flows as attractive as the ones generated in the recent past, and ample opportunity to increase the dividend payment (the forward dividend yield is about 1.3%). Now might be the time to take a serious look at Intel; decide for yourself whether it should make your investment cut.

More Takes on Intel:

• Intel: Bring on the Pain
• Intel's Best Buy: Itself?
• Intel's Optical Breakthrough
• Process your thoughts at the Intel discussion board.

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Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.