07 May 2010

INTC: Financial Gauge Analysis for the March 2010 Quarter

Intel Corporation (NASDAQ: INTC) earned $0.43 per diluted share in the first quarter of fiscal 2010.  Intel's income was nearly four times the $0.11 per share it made in 2009's first quarter.

In our earlier review of Intel's Income Statement, we compared the actual results to our "look-ahead" estimates

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.  This post reports on the metrics for Intel and the associated financial gauge scores.  The metrics were calculated using data from Intel's current and historical financial statements, including the latest 10-Q.

Intel is the foremost manufacturer of integrated circuits for computers, servers, hand-held devices, and communication products.  Additional background information about Intel and the business environment in which it is currently operating can be found in the look-ahead.

In summary, Intel's latest quarterly results produced the following changes to the gauge scores:
The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.

Cash Management27 Mar 201026 Dec 200928 Mar 20095-yr Avg
Current Ratio2.
Debt/CFO (years)
Inventory/CGS (days)67.570.475.474.4
Finished Goods/Inventory35.1%35.1%40.0%37.8%
Days of Sales Outstanding (days)20.020.924.328.2
Working Capital/Revenue32.9%34.3%34.4%32.7%
Cash Conversion Cycle Time (days)44.343.948.154.5
Gauge Score (0 to 25)20171013

The Cash Management metrics for Intel continued to improve, pushing the gauge score into excellent territory.  The nearly 3-day reduction in the Inventory level over the last three months is the most significant sign of enhanced efficiency.  There's also no indication that Finished Goods are backing up in the Inventory.

The continuing progression towards fewer Days of Sales Outstanding is also indicative of improved cash efficiency.

Debt is minimal relative to Equity and Cash Flow.  Working Capital is consistent with the company's historical norms. 

Growth27 Mar 201026 Dec 200928 Mar 20095-yr Avg
Revenue growth9.2%-6.5%-10.5%1.4%
Operating Profit growth52.4%22.0%2.9%30.5%
CFO growth63.6%2.2%-31.6%47.8%
Net Income growth38.1%-17.4%-34.0%59.9%
Gauge Score (0 to 25)24508
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.

The Growth gauge soared to within a point of a perfect score.  Intel's growth metrics -- good by most any standard -- are magnified because recent strong quarters are being compared with weak year-earlier results.

Trailing year Revenue turned positive after five successive quarters in the red.  This greatly abetted the gauge's rise.  The sharp increase in Revenue as a percentage of Assets also fed the rebound.

Cash Flow from Operations during the March 2010 quarter was $4.1 billion, up from $378 million one year earlier.  The latest amount was the best since 2007.  Trailing-year Cash Flow was a record.

Profitability27 Mar 201026 Dec 200928 Mar 20095-yr Avg
Operating Expenses/Revenue70.2%75.3%77.2%75.5%
Free Cash Flow/Invested Capital37.3%22.6%11.2%16.6%
Accrual Ratio4.2%2.2%-0.2%6.8%
Gauge Score (0 to 25)2012812

The Profitability gauge also streaked higher as margins and returns (both earnings and cash flow) improved substantially.

The rising accrual ratio bears watching as potential cautionary sign.  Quality of earnings is considered better when the ratio is negative and getting lower.

Value27 Mar 201026 Dec 200928 Mar 20095-yr Avg
P/E vs. S&P 500 P/E
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)4168
Share Price ($)$22.24$20.33$15.42-

While earnings, sales, and cash flow have all increased mightily, Intel's share price has also moved higher.  This kept the Value gauge from rising more. 

The ideal case is strong financial metrics not appreciated by the markets. 

The Price-to-Revenue ratio avoids complications such as special charges and variable tax rates. 

Overall27 Mar 201026 Dec 200928 Mar 20095-yr Avg
Gauge Score (0 to 100)55322940

After a tough stretch in early 2009, recent excellent quarters have pushed the Overall gauge up into a very attractive area.  A dip in the share price would help the Value gauge and provide the last bit of impetus to get the Overall gauge over 60 points.

Full disclosure: Long INTC at time of writing.

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