11 November 2009

INTC: Financial Gauge Analysis (Updated) for the September 2009 Quarter

We previously posted Intel Corporation's (NASDAQ: INTC) preliminary financial gauge scores for the third quarter of 2009.  To obtain those results, the financial statements in Intel's latest earnings announcement were used to calculate Cash Management, Growth, Profitability and Value metrics.

Intel later filed a more detailed 10-Q report, which included an updated Cash Flow statement.  We have now adjusted the metrics and scores to take advantage of the latest information.

The net effect of the changes was to trim two points each, compared to the preliminary estimates, from the Profitability and Overall gauge scores:
  • Overall: 22 of 100 (down from 27) -- initial estimate was 24
For the record, current and historical figures for the financial metrics that determine the gauge scores are listed below.  Numbers that changed from the preliminary analysis are highlighted.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

Cash ManagementSep 2009Jun 2009Sep 20085-yr Avg
Current Ratio2.
Debt/CFO (years)
Inventory/CGS (days)68.569.672.974.1
Finished Goods/Inventory41.0%43.2%40.8%37.4%
Days of Sales Outstanding (days)26.523.525.829.7
Working Capital/Invested Capital40.6%39.8%39.1%43.4%
Cash Conversion Cycle Time (days)40.544.747.455.9
Gauge Score (0 to 25)13131311

GrowthSep 2009Jun 2009Sep 20085-yr Avg
Revenue growth-18.2%-15.9%7.4%-3.1%
Operating Profit growth7.5%4.8%9.7%-3.8%
CFO growth
Net Income growth-68.3%-65.1%18.1%-14.2%
Gauge Score (0 to 25)10108
Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.
The Operating Profit rate is the annualized rate of growth in
Operating Profit after Taxes over the last 16 quarters.

Cash Flow from Operations was quite a bit better in the third quarter than we had estimated.  However, a change from a 26 percent (estimated) to a 21 percent (actual) decline in Cash Flow is not going to add points to a gauge measuring Growth.

ProfitabilitySep 2009Jun 2009Sep 20085-yr Avg
Operating Expenses/Revenue79.6%78.7%72.2%75.9%
Free Cash Flow/Invested Capital
Accrual Ratio
Gauge Score (0 to 25)9102212

As mentioned above, Cash Flow from Operations was greater than we had estimated.  This increased the Free Cash Flow to 18.0 percent and would have had a positive effect on the gauge score.

However, even more cash was used for Investing activities than we had thought.  This raised the Accrual Ratio (not good) from -5.1 percent to -1.7 percent, a significant increase.  Because the negative effects of the higher Accrual Ratio outweighed the positive benefits of the improved Free Cash Flow, the gauge score ended up two points lower than the 11 points we had initially estimated.

ValueSep 2009Jun 2009Sep 20085-yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)03159

The ratio of Intel's Price/Earnings ratio to the market multiple increased as a result of updates to S&P 500 index data.

We had estimated EV/CFO at 10.3, but better CFO lowered the ratio to 9.6.  The difference wasn't enough to add any points to the score.

OverallSep 2009Jun 2009Sep 20085-yr Avg
Gauge Score (0 to 100)22276641

A two-point reduction in the Overall score is not especially significant.

The low score might be surprising given Intel's generally commendable third-quarter results.  However, the gauges are constructed to respond negatively when the latest four quarters compare unfavorably to previous periods.  The current trailing year includes the end of 2008 and the beginning of 2009 when the worldwide economy seized up, Intel's results suffered, the company was fined $1.447 billion by the European Commission for antitrust violations, and Intel wrote off $1 billion of its investment in Clearwire Corp. (NASDAQ: CLWR).

Lacking new shocks, year-to-year comparisons should soon become more favorable.  Investors appear to have been bidding up Intel shares in anticipation of a more positive results.  Intel's share price rose from as low as $12 earlier this year to about $20 at the end of the third quarter.

Full disclosure: Long INTC at time of writing.

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