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Hi everyone,

So this morning, I was looking some more at Intel. Fellow Fool Matt Koppenheffer had this article out yesterday and his comments about cyclicality (which I knew) prompted me to do some more research to see if I could place it in its current cycle. Decided to plot historical TTM FCF, TTM average PE (one quarter shifted), and closing prices (one quarter shifted).

Here it is on Google Docs: You should be able to view that.

Looking at FCF, there's approximately 2+ cycles on that chart, each lasting about 6 years or so. 1995-2001 (trough to trough) and 2001-2008. Last couple of years seem to be on the upswing.

What's odd is that PE is not a counter indicator, as I would have expected for a cyclical company. It ran up in the first cycle and then started to fall off as the dot-com bubble burst. The huge spike in 2001 is from the fact that earnings fell faster than price fell, so PE went through the roof (and that was the absolute high of the bubble at the beginning of that year, so it's biased upwards -- I don't think I can grab median PE from my data source, just the mean). For the second cycle, PE was still falling and then didn't rise again as the trough came and went. But by that time, the credit crisis was coming up and the housing bubble was beginning to collapse.

Price (dividend/split adjusted) spiked in 1999 (actually, plotted prices are the closing prices for the following March) and then floated along between $15 and $25 for the next 10 years as PE came down through 2004 and the next cycle played out.

The question is, is today's low PE, below 10, an MUE relative to the high earnings right now? And will it correct in the next year or so, driving the price up before the earnings cycle tops out again in 2012-2013 or so (going by the last two cycles)?

The numbers for FCF expectations are 7.3% / 3.6% / 0% (at 15% discount) at last night's price. From 2005 to 2010, it was just 5% (you can see that if you draw a line on the graph), so that might be reasonable. You can see the cycle forming again as the 3-year rate is 14.6% and the 1-year rate is 72.6%. In other words, the slope of the line connecting the begin/end points steepens as you move the beginning point closer to 2010. So I can't judge by that.

If PE doubles and earnings remain flat or grow just slightly, then the price will double, but that would be an 11-year high or so. And prices are about future expectations. Will analysts realize that Intel's earnings would be peaking and scale back expectations?

Lots of things to think about.

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No. of Recommendations: 3
Hi Jim,

I'm glad you're still looking at Intel, as I recently established a position and really enjoy your analysis.

Here's a link to some INTC analysis I did on another board that focused more on the dividend side of the stock:

I'm sure there's nothing in there that you're not already aware of, and it's not really an MUE thesis, but I've been wondering if the dividend alone could be a catalyst for an increase in the stock price. Looking at historical payout ratios for Intel, if the stock stays in the $20 range it could easily reach a 5% dividend payout in the next couple of years. Specifically, if INTC raises its dividend by 15% per year for the next two years (inline with the last several years) from $.72 to $.95, and stock price stays at $20, we're talking about a 4.8% dividend yield.

I have a difficult time believing that a company as solid as Intel, paying that kind of a dividend, wouldn't have its price bid back up to a more reasonable dividend yield of 2% or 3%. If you take that same dividend of $.95 and solve for a 3% dividend yield, we get a stock price of almost $32. Solve for a 2.5% dividend yield and we get $38.

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