CEO Brian Krzanich is implementing a major reset at the company that should transform Intel from a zero-growth story as a desktop-dependent enterprise to a profit-making company that powers the cloud and smart, connected devices.
Not only will this shift help Intel get a better valuation, but it will likely position an investment made today for a 17-18% total return in a year's time. Intel shares were roughly flat in last Monday trading.
Intel has lunged forward between last month's third-quarter earnings and today.
In its third quarter, the brand pulled off 9.1% year-over-year revenue growth and 21% year-over-year net income expansion. These results are better than those of peers Qualcomm, Taiwan Semiconductor, Texas Instruments, Micron Technology, Applied Materials, and SoftBank's ARMH Holdings.
The reason: Intel is shedding its stuffy reputation, striking new partnerships and working on exciting technologies to become the chip supplier of the future.
The company's artificial intelligence (AI) strategy, enterprise cloud alliance with Alphabet, and growing investments in autonomous driving, drones and virtual reality are some of the more promising changes. Intel remains the king of the chip world, yet it's proving agile enough to venture into new areas.
The company has recently enjoyed some favorable legal news. Last month, an advisor to the Court of Justice of the European Union (ECJ) supported Intel's appeal against a record 1.06 billion euro penalty for alleged antitrust violations. EU regulators had imposed the penalty in 2009 for Intel's efforts to strangle Advanced Micro Devices.
Intel's valuation (price/earnings to growth ratio of 1.31), highly profitable business (nearly 18% profit margin), large amount of cash and comfortable debt position, and strategy to turn the company into more promising directions have been ignored by most investors. But
The stock, which offers a nearly 3% dividend yield, is poised for market-beating returns over the next 12 months.
The median average estimate by analysts is for the stock to jump 14-15% over the next year. Because Intel shares have remained largely flat year to date, this opens a potentially massive opportunity to buy a pedigreed chipmaker at a comfortable valuation.
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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.