Intel Corporation Quarterly Valuation – May 2015 $INTC

500px-Intel-logo.svgIntel Corporation (INTC) may attract some potential investors, as the company is so well known for its products. In addition, the company reportedly recently offered to buy Altera (ALTR) in an expansion bid, and may be moving to expand its market share in China. These developments, along with the company’s strong earnings, may play a role in a historically low level of short-interest in the company. However, despite all of these qualitative factors, it is critical to conduct a quantitative analysis of the company’s intrinsic value.

In fact, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether a company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here is a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation, in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

INTC Chart

INTC data by YCharts

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – FAIL
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – PASS
  7. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $33.12
MG Value $32.91
MG Opinion Fairly Valued
Value Based on 3% Growth $30.36
Value Based on 0% Growth $17.80
Market Implied Growth Rate 3.66%
NCAV -$1.66
PEmg 15.82
Current Ratio 1.76
PB Ratio 2.96

Balance Sheet – March 2015

Current Assets $26,466,000,000
Current Liabilities $15,035,000,000
Total Debt $12,112,000,000
Total Assets $89,566,000,000
Intangible Assets $14,977,000,000
Total Liabilities $34,642,000,000
Outstanding Shares 4,914,000,000

Earnings Per Share

2015 (estimate) $1.97
2014 $2.31
2013 $1.89
2012 $2.13
2011 $2.39
2010 $2.01
2009 $0.77
2008 $0.92
2007 $1.18
2006 $0.86
2005 $1.40

Earnings Per Share – ModernGraham

2015 (estimate) $2.09
2014 $2.15
2013 $2.00
2012 $1.91
2011 $1.69
2010 $1.27

Dividend History

INTC Dividend Chart

INTC Dividend data by YCharts


Intel Corporation passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only initial concern is the low current ratio, and the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, Intel has grown its EPSmg (normalized earnings) from $1.69 in 2011 to an estimated $2.09 for 2015. This is not a healthy level of earnings growth, and supports the market’s implied estimate for 3.66% annual growth over the next 7-10 years.

In fact, the average earnings growth over the last several years is around 4.8%, so the market is pricing in a slight drop in growth going forward. The ModernGraham valuation model returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating that Intel is fairly valued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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