Intel Corporation (NASDAQ:INTC)’s free cash flow and capital expenditures have both been concerns for investors lately. Some believe that if the company can improve its free cash flow, it will see better multiples.

On the other hand, others say the company’s capital expenditures could be a red flag for investors. However, analysts at Sterne Agee believe that the focus should actually be on Intel’s gross margins.

Intel corporation

In a report issued to investors over the weekend, the analysts said investors have been discussing reductions in Intel Corporation (NASDAQ:INTC)’s free cash flow and capital expenditures as important indicators for the company’s stock performance. Of course free cash flow generally indicates strong gross margins, and it’s easier to achieve stable free cash flow in a flat growth environment through better operational management or better balance of stock buybacks and dividends.

The analysts decided to look into how shares of Intel have traded over the last decade on gross margins versus free cash flow. Their research indicates on the surface that Intel’s stock price seems to be more strongly correlated with the company’s gross margins. A deeper look indicates that the R-square to gross margins has a 10 times better correlation than free cash flow.

On a side note, Intel Corporation (NASDAQ:INTC) is still looking for its next CEO, and it’s running out of time. Current CEO Paul Otellini will leave next month. Sterne Agee analysts believe Intel will choose one of its current employees or someone “with prior familiarity” with its operations.

Shares of Intel Corporation (NASDAQ:INTC) fell 2 percent in early Monday afternoon trading.

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