In our earlier review of Intel's Income Statement, we compared the actual results to our "look-ahead" estimates. Reported earnings were $0.09 better than the $0.42 per share we had forecast for the second quarter.
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.
Before getting into the details, we will take one step back to introduce the subject of today's analysis.
Intel is the foremost manufacturer of integrated circuits for computers, servers, hand-held devices, and communication products. The company has nine product groups, with PC Client and Data Center being the two largest. 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:
- Cash Management: 13 of 25 (down from 20 in March)
- Growth: 24 of 25 (unchanged)
- Profitability: 22 of 25 (up from 20)
- Value: 16 of 25 (up from 4)
- Overall: 72 of 100 (up from 55)
The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary. 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 Management | 26 Jun 2010 | 27 Mar 2010 | 27 Jun 2009 | 5-yr Avg |
| Current Ratio | 3.3 | 2.7 | 2.6 | 2.5 |
| LTD to Equity | 4.5% | 4.8% | 3.0% | 4.7% |
| Debt/CFO (years) | 0.2 | 0.2 | 0.1 | 0.2 |
| Inventory/CGS (days) | 70.8 | 67.5 | 74.6 | 74.6 |
| Finished Goods/Inventory | 38.9% | 35.1% | 43.2% | 38.1% |
| Days of Sales Outstanding (days) | 19.3 | 20.0 | 23.6 | 27.6 |
| Working Capital/Revenue | 34.0% | 32.9% | 34.7% | 32.4% |
| Cash Conversion Cycle Time (days) | 45.3 | 44.3 | 47.8 | 54.1 |
| Gauge Score (0 to 25) | 13 | 20 | 7 | 13 |
The Cash Management score reacted negatively to Inventory growth, which reversed a trend towards leaner inventories. The inventory level relative to the Cost of Goods Sold expanded by more than 3 days during the second quarter. Although a significant jump, the Inventory level remains comfortably below historic highs (see chart).
In the 10-Q, Intel indicates that the inventory buildup is associated with new products and in anticipation of stronger sales during the second half of the year. The company frankly states: "We are comfortable with inventory levels across the supply chain."
Debt is minimal relative to Equity and Cash Flow. Working Capital is consistent with the company's historical norms.
The continuing progression towards fewer Days of Sales Outstanding is indicative of improved cash efficiency.
| Growth | 26 Jun 2010 | 27 Mar 2010 | 27 Jun 2009 | 5-yr Avg |
| Revenue Growth | 22.0% | 9.2% | -15.9% | 4.4% |
| Revenue/Assets | 76.9% | 73.5% | 66.3% | 75.1% |
| Operating Profit Growth | 64.5% | 52.4% | 4.8% | 46.5% |
| CFO Growth | 55.2% | 63.6% | -29.4% | 72.3% |
| Net Income Growth | 281.9% | 38.1% | -65.1% | 69.7% |
| Gauge Score (0 to 25) | 24 | 24 | 0 | 9 |
The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.
The Growth gauge remained within a point of a perfect score. The growth rates listed above are stellar, even if they have been amplified by weakness in late 2008 and early 2009.
Trailing-year Revenue hit a record high, and the Revenue growth rate, which turned positive only one quarter earlier, is now over 20 percent. Revenue as a percentage of Assets is also encouragingly back over its long-term average after a weak spell.
The Cash Flow and Net Income growth rates are certainly not sustainable, but the trends are encouraging. Intel achieved $3.5 billion in Cash Flow from Operations during the last three months.
| Profitability | 26 Jun 2010 | 27 Mar 2010 | 27 Jun 2009 | 5-yr Avg |
| Operating Expense/Revenue | 66.2% | 70.2% | 78.7% | 75.1% |
| ROIC | 35.2% | 28.2% | 15.9% | 23.0% |
| Free Cash Flow/Invested Capital | 37.6% | 37.3% | 13.6% | 17.6% |
| Accrual Ratio | 9.2% | 4.2% | -4.1% | 7.1% |
| Gauge Score (0 to 25) | 22 | 20 | 10 | 13 |
The Return on Invested Capital is not quite at a high for the last decade or so, but it is getting close.
The rising accrual ratio is something we need to watch. Quality of earnings is generally considered better when the ratio is negative and getting lower.
| Value | 26 Jun 2010 | 27 Mar 2010 | 27 Jun 2009 | 5-yr Avg |
| P/E | 12.1 | 20.4 | 36.8 | 20.7 |
| P/E vs. S&P 500 P/E | 0.8 | 1.2 | 1.6 | 1.2 |
| PEG | 0.2 | 0.4 | 7.6 | 2.3 |
| Price/Sales | 2.8 | 3.3 | 2.7 | 3.3 |
| Enterprise Value/Cash Flow (EV/CFO) | 6.6 | 7.6 | 8.4 | 7.1 |
| Gauge Score (0 to 25) | 16 | 4 | 3 | 8 |
| Share Price ($) | $20.03 | $22.24 | $16.29 | - |
The Price-to-Sales ratio, which avoids complications such as special charges and variable tax rates, is near a historic low.
| Overall | 26 Jun 2010 | 27 Mar 2010 | 27 Jun 2009 | 5-yr Avg |
| Gauge Score (0 to 100) | 72 | 55 | 23 | 41 |
After a tough stretch in 2009, a string of excellent quarters have now pushed the Overall gauge up into a very attractive area.
Full disclosure: Long INTC at time of writing.
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