Profitability & Effectiveness (ttm)
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- VII. Financial Forecasts (from analysts)
- Marketability Trading Location – NASDAQ (INTC) Average Volume – 83,131,800 (last 3 months) Total Risk
- IX. Fundamental Valuation Required Rate of Return
- Valuation Buffet Model
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Intel vs. Industry & S&P 500- 5 most recent days
Again, Intel has significantly underperformed the broad market average and the semiconductor industry tracked by yahoo.
As you can see from the competitive analysis, Intel is clearly the largest player in the semiconductor industry as shown from its market cap and revenues. AMD has better revenue growth which explains their increase in market share stealing some from Intel. Also, Intel’s P/E is significantly lower than its competitors.
VII. Financial Forecasts (from analysts)
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www.finance.yahoo.com
Looking at the estimates from analyst compared to their respective earnings a year ago, Intel clearly does not expect to have a great year. This is determined by the continued loss of market share to AMD. However, there is rumors that Intel could start a pricing war with AMD in hopes to gain back some of the market share.
Growth Estimates and Trend Analysis
Source: finance.yahoo.com
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Growth Estimates |
INTC |
Industry |
Sector |
S&P 500 |
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Current Qtr. |
-51.5% |
20.7% |
16.1% |
11.3% |
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Next Qtr. |
-25.0% |
17.1% |
15.9% |
12.4% |
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This Year |
-31.4% |
17.4% |
14.8% |
13.0% |
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Next Year |
26.0% |
19.7% |
19.2% |
10.6% |
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Past 5 Years (per annum) |
28.0% |
N/A |
N/A |
N/A |
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Next 5 Years (per annum) |
15.0% |
15.11% |
14.23% |
10.59% |
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Price/Earnings (avg. for comparison categories) |
19.9 |
22.37 |
21.69 |
15.27 |
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PEG Ratio (avg. for comparison categories) |
1.33 |
1.48 |
1.52 |
1.44 |
As seen from above, Intel’s growth is significantly lower than the average company in the semiconductor industry and the S&P as a whole. Yet, with estimates at such low levels, Intel will have an easier time in beating such estimates and thus a potential rise in the stock price. Even though the short term outlook is very gloomy for Intel, lower prices and an increase in the sales of new chips will enable Intel to possibly overcome its growth short comings.
Trend Analysis (Intel vs. S&P 500)
Until January, Intel had performed above the broad market average. On January 17, Intel released their Q1 revenue guidance FY 06. As you can see, Intel’s stock price decreased significantly and has not recovered from missing analyst estimates.
VIII. Analysis of Risk
Intel is traded on NASDAQ with a ticker symbol of “INTC” and appears in many indexes. The average trading volume for Intel was 49,486,800 over the past three months. The share price had a low of $18.60 and a high of $28.84 over the past 52 weeks. Beta is measured at 1.508. The standard deviation, or relative risk, was measured at approximately 2.55 with a correlation of .65
Marketability
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Trading Location – NASDAQ (INTC) -
Average Volume – 83,131,800 (last 3 months)
Total Risk
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Range 52 week range $18.60 – $28.84
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Standard Deviation 2.55
Systematic Risk
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Correlation to market/industry 0.657 -
Beta with market/industry 1.508
IX. Fundamental Valuation
Required Rate of Return
The risk-free rate used was the 1 year T-bill return at 4.6%. The equity risk premium was derived at 5.4% and beta was measured at 1.64.
RE = RF+ β(Equity Risk Premium)
RE = 4.6 + (1.64) (5.4) = 13.45%
Valuation
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Buffet Model
Assuming 10% growth until 09 then 5% till 2015
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Buffet Model |
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2nd Stage Growth/Discount Rate |
5% |
6% |
7% |
8% |
9% |
10% |
11% |
12% |
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0% |
$43.85 |
36.19 |
30.78 |
26.75 |
23.65 |
21.19 |
19.19 |
17.54 |
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1% |
51.46 |
40.86 |
33.84 |
28.86 |
25.16 |
22.3 |
20.03 |
18.19 |
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2% |
64.16 |
47.85 |
38.12 |
31.68 |
27.1 |
23.69 |
21.06 |
18.96 |
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3% |
89.54 |
59.51 |
44.55 |
35.62 |
29.69 |
25.48 |
22.34 |
19.91 |
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4% |
165.71 |
82.82 |
55.26 |
41.53 |
33.32 |
27.87 |
23.99 |
21.1 |
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5% |
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152.76 |
76.68 |
51.38 |
38.76 |
31.21 |
26.19 |
22.62 |
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6% |
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140.95 |
71.08 |
47.83 |
36.22 |
29.27 |
24.65 |
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7% |
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130.19 |
65.96 |
44.57 |
41.59 |
27.49 |
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8% |
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120.36 |
61.27 |
56.98 |
31.75 |
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9% |
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111.38 |
103.17 |
38.85 |
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10% |
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53.05 |
Assuming 10% growth until 2015
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Buffet Model |
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2nd Stage Growth/Discount Rate |
5% |
6% |
7% |
8% |
9% |
10% |
11% |
12% |
13% |
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0% |
$54.84 |
44.81 |
37.74 |
32.5 |
28.47 |
25.29 |
22.73 |
20.62 |
18.85 |
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1% |
81.68 |
50.98 |
41.78 |
35.29 |
30.47 |
26.77 |
25.19 |
21.47 |
19.52 |
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2% |
115.25 |
60.22 |
47.45 |
39.01 |
33.04 |
28.61 |
26.89 |
22.49 |
20.31 |
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3% |
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75.63 |
55.94 |
44.22 |
36.46 |
30.97 |
29.07 |
23.74 |
21.25 |
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4% |
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106.45 |
70.11 |
52.03 |
41.26 |
34.13 |
31.98 |
25.31 |
22.41 |
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5% |
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98.43 |
65.05 |
48.45 |
38.54 |
36.05 |
27.32 |
23.85 |
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6% |
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91.1 |
60.44 |
45.17 |
42.16 |
30 |
25.71 |
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7% |
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84.41 |
56.21 |
52.33 |
33.76 |
28.18 |
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8% |
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78.29 |
72.69 |
39.39 |
31.65 |
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9% |
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133.75 |
48.78 |
36.85 |
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10% |
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67.55 |
45.52 |
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62.85 |
Estimating the Discount rate between 9-13% and 2nd stage growth rate between 0-7% we get these price targets:
1 Yr Targets
Downside: $17.54
Upside: $28.18
2. DCF Model
Constructed in Excel starting with FCF:
Sales Revenue
-Operating Costs
-Taxes
-Net Investment
-Change in working capital
=FCF
Operating costs, net investment and change in working capital were all found using the average regression for the past 10,5 and 2 years respectively.
The tax rate assumed to be constant. However, taxes are assumed to change within a few percentage points from the current rate of 31% even though such changes were not reflected within valuation.
Assumes growth rates are constant over the next ten years. (By regressing revenue over the past 10, 5, and 3 years, growth has been at 11.89%, 13% and 22% respectively. The average of those 3 is 16%). These growth rates are conservative if looking at past data, yet past growth does not guarantee future growth.
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DCF Model |
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WACC/Sales growth |
5% |
6% |
7% |
8% |
9% |
10% |
11% |
12% |
13% |
14% |
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5% |
20.7 |
24.54 |
28.52 |
32.64 |
36.91 |
41.34 |
45.91 |
50.85 |
55.55 |
60.63 |
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6% |
18.26 |
21.66 |
25.17 |
28.82 |
32.59 |
36.49 |
40.53 |
44.71 |
49.04 |
53.51 |
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7% |
16.16 |
19.17 |
22.28 |
25.5 |
28.84 |
32.3 |
35.88 |
39.58 |
43.4 |
47.36 |
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8% |
14.33 |
17 |
19.77 |
22.63 |
25.6 |
28.67 |
31.84 |
35.12 |
38.52 |
42.03 |
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9% |
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15.12 |
17.59 |
20.14 |
22.78 |
25.51 |
28.34 |
31.26 |
34.28 |
37.4 |
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10% |
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13.49 |
15.69 |
17.97 |
20.33 |
21.83 |
25.29 |
27.9 |
30.59 |
33.37 |
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11% |
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18.19 |
20.37 |
22.63 |
24.96 |
27.37 |
29.87 |
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12% |
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18.28 |
20.3 |
22.4 |
24.56 |
26.8 |
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13% |
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16.44 |
18.27 |
20.16 |
22.11 |
24.12 |
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14% |
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16.48 |
18.19 |
19.95 |
21.77 |
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15% |
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16.46 |
18.05 |
19.7 |
1 Yr Target Prices:
Downside: $17
Upside: $25.29
Financial Summary