Intel INTC recently announced that it will repurchase shares worth $10 billion under the accelerated share repurchase (ASR) agreement by utilizing the existing cash resources.
In a filing with the U.S. Securities and Exchange Commission (SEC), Intel stated that it will receive 166 million shares on Aug 21 from the counterparty financial institution after paying $10 billion, per the terms of ASR. The final settlement will be completed by the end of 2020.
Intel’s strong cash flows provides it with the financial flexibility to initiate shareholder friendly initiatives of share repurchase and improve scope for product innovation and expansion in newer markets. Besides, lower number of outstanding shares is expected to drive the bottom line in the quarters ahead.
Notably, the chipmaker generated more than $10.6 billion of free cash flows in the first half of 2020.
Shares of Intel are up more than 3% in the pre-market trading on Aug 20, following the announcement. On a year-to-date basis, shares of Intel are down 19.3% against the industry’s rally of 21.5%.
Consistent Track Record
Intel has an impressive track record of returning value to shareholders through share repurchases and dividend payouts.
For 2018 and 2019, the company repurchased shares worth $10.7 billion and $13.6 billion, respectively. Intel had announced a $20-billion share repurchase program in October 2019. In March 2020, owing to the coronavirus crisis, Intel had temporarily suspended its share buyback activities to preserve cash.
Until the suspension, the company had bought back $7.6 billion worth shares. With the latest $10-billion share repurchases, the total buyback amount is at $17.6 billion. Intel expects to buy back the remaining $2.4 billion worth of shares as the COVID-19 crisis ebb and markets stabilise.
Despite suspending share buyback, management continued to pay out dividends. For the second quarter of 2020, the company paid $1.4 billion as dividends taking the total to $2.8 billion for the first half of 2020. For 2018 and 2019, Intel paid out dividends worth $5.5 billion and $5.6 billion, respectively.
High Debt Remains a Concern
However, Intel has a highly leveraged balance sheet. As of Jun 27, 2020, the company’s net debt was $24.82 billion compared with $19.12 billion as of Mar 28, 2020.
A highly leveraged balance sheet is a concern owing to the high cost of servicing the debt through cash flows. This in turn might impact a company’s shareholder return plans.
Zacks Rank & Key Picks
At present, Intel carries a Zacks Rank #3 (Hold).
A few better-ranked stocks worth considering in the broader sector are Apple AAPL, Blackbaud (NASDAQ:BLKB) BLKB and Analog Devices (NASDAQ:ADI) ADI. While Apple and Blackbaud flaunt a Zacks Rank #1 (Strong Buy), Analog Devices carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Apple, Blackbaud and Analog Devices is currently pegged at 10.7%, 7.6%, and 13.3%, respectively.
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