On Nov. 29, Brian Krzanich, the CEO of chip giant Intel (NASDAQ: INTC), reported several transactions in Intel stock in a Form 4 filing with the SEC.
Most of the transactions involved Krzanich exercising employee stock options (these options allowed Krzanich to purchase Intel shares at prices significantly below where they are currently trading) and then immediately selling those shares that he bought at a discount on the open market.
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There's nothing wrong with, or even unusual about, such transactions. Company executives, and even some employees, often receive either stock options and/or restricted stock units (RSUs) as part of their compensation packages, and at some point, the recipients of such compensation are going to want to turn it into cash.
Indeed, as explained here, insider selling isn't always a red flag.
However, there were two transactions that Krzanich reported in that Form 4 filing that I thought were more notable than typical stock option exercises and subsequent share sales. Let's take a closer look.
Krzanich is keeping the bare minimum
Intel's corporate bylaws mandate a certain amount of stock ownership by executives and board members by the time they've been with the company for five years. Here are the amounts based on rank within the company:
|Title||Minimum Number of Shares|
|Executive chairman and president||150,000|
|Executive vice president||100,000|
|Senior vice president||65,000|
|Corporate vice president||35,000|
|Other VPs, Intel Fellows, and senior leaders||5,000-10,000|
Since Krzanich was appointed Intel CEO in May of 2013, he'll need to have 250,000 shares by May 2018 -- or about five months from now.
What's interesting, then, is that before Krzanich made any of the transactions that he reported in his most recently filed Form 4, he held 495,743 shares.
After the options exercises and subsequent sales (which left Krzanich's position unchanged at 495,743 shares), Krzanich then made two more transactions: a sale of 242,830 shares and a sale of 2,913 shares, with each transaction happening at an average price of $44.555, per the filing.
Those two transactions left Krzanich with exactly 250,000 shares -- the bare minimum that he's required to hold as CEO.
What does this mean?
Perhaps Krzanich sold those 245,743 shares valued at nearly $11 million at the time of the transactions to pay for a new house or buy a rare piece of artwork.
However, I find those explanations tenuous at best, particularly in light of the big windfall that he received when he exercised and sold all those stock options.
Instead, given that Krzanich seems to have sold all the shares he could save for those he is required by Intel's corporate bylaws to hold, the impression that I get is that Krzanich doesn't have a ton of faith in the potential for Intel stock to appreciate, perhaps driven by a lukewarm (or potentially even negative) view of the company's near- to medium-term business prospects.
After all, considering that Intel CFO Robert Swan reportedly said in a memo seen by The Oregonian that the company aims to boost its market capitalization to $300 billion (implying a share price north of $60) by 2021, wouldn't it have been wiser for Krzanich to hold those shares, collecting about a quarter of a million dollars per year in dividend payouts, before until they gained another $16 in value each, totaling nearly $4 million in additional value?
Indeed, considering that Krzanich claimed back in February that Intel's total addressable market is now on track to hit $220 billion by 2021, it seems strange that with all these growth opportunities ahead of Intel he'd choose to keep only the shares that he's required to by Intel's rules.
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