IT Hardware Stocks

Intel Corporation Valuation – May 2016 $INTC

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:

ModernGraham Valuation of INTC – May 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

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
Score
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

INTC value chart May 2016

EPSmg $2.15
MG Growth Estimate 1.89%
MG Value $26.44
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $31.23
MG Value based on 0% Growth $18.31
Market Implied Growth Rate 2.71%
Current Price $29.99
% 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

INTC charts May 2016

Net Current Asset Value (NCAV) -$3.47
Graham Number $24.32
PEmg 13.92
Current Ratio 1.56
PB Ratio 2.39
Current Dividend $0.98
Dividend Yield 3.27%
Number of Consecutive Years of Dividend Growth 2

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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
Long-term Debt $21,775,000,000
Total Assets $105,467,000,000
Intangible Assets $28,082,000,000
Total Liabilities $44,293,000,000
Shares Outstanding (Diluted Average) 4,875,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.03
12/1/2015 $2.33
12/1/2014 $2.31
12/1/2013 $1.89
12/1/2012 $2.13
12/1/2011 $2.39
12/1/2010 $2.01
12/1/2009 $0.77
12/1/2008 $0.92
12/1/2007 $1.18
12/1/2006 $0.86
12/1/2005 $1.40
12/1/2004 $1.16
12/1/2003 $0.85
12/1/2002 $0.46
12/1/2001 $0.19
12/1/2000 $1.51
12/1/1999 $1.06
12/1/1998 $0.87
12/1/1997 $0.97
12/1/1996 $0.73

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.15
12/1/2015 $2.21
12/1/2014 $2.15
12/1/2013 $2.00
12/1/2012 $1.91
12/1/2011 $1.69
12/1/2010 $1.27
12/1/2009 $0.95
12/1/2008 $1.06
12/1/2007 $1.11
12/1/2006 $1.04
12/1/2005 $1.02
12/1/2004 $0.83
12/1/2003 $0.72
12/1/2002 $0.70
12/1/2001 $0.86
12/1/2000 $1.14

Recommended Reading:

Other ModernGraham posts about the company

11 Best Stocks For Value Investors This Week – 11/21/15
Intel Corp Valuation – November 2015 Update $INTC
The Best Stocks of the IT Hardware Industry – September 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Intel Corporation Analysis – August 2015 Update $INTC

Other ModernGraham posts about related companies

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Applied Materials Inc Valuation – February 2016 $AMAT
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Emerson Electric Co Valuation – February 2016 $EMR
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Analog Devices Inc Stock Valuation – February 2016 $ADI

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.  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.

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