Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Intel Corporation (INTC) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Intel Corporation is engaged in the design and manufacture of digital technology platforms. The Company’s segments include Client Computing Group (CCG), Data Center Group (DCG), Internet of Things Group (IOTG), Software and Services (SSG) and All Other. CCG segment includes platforms designed for notebooks (including Ultrabook devices), 2 in 1 systems, desktops (including all-in-ones and personal computers (PCs)), tablets, phones, wireless and wired connectivity products, and mobile communication components. DCG segment includes server, network and storage platforms designed for the enterprise, cloud, communications infrastructure and technical computing segments. IOTG segment includes platforms designed for Internet of Things market segments, including retail, transportation, industrial, and buildings and home use. SSG segment includes Intel Security Group, and Software and Services group. All Other segment includes Non-Volatile Memory Solutions Group and the New Devices Group.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$139,702,280,739||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.56||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||132.40%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||13.92||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||2.39||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.56||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||2.21||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||1.89%|
|MG Value based on 3% Growth||$31.23|
|MG Value based on 0% Growth||$18.31|
|Market Implied Growth Rate||2.71%|
|% of Intrinsic Value||113.44%|
Intel Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.91 in 2012 to an estimated $2.15 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.71% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
Intel Corporation performs fairly well in the ModernGraham grading system, scoring a B-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$3.47|
|Number of Consecutive Years of Dividend Growth||2|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2016|
|Total Current Assets||$27,397,000,000|
|Total Current Liabilities||$17,526,000,000|
|Shares Outstanding (Diluted Average)||4,875,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.03|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.15|
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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. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.