IT Hardware Stocks

Intel Corp Valuation – February 2018 $INTC

Company Profile (obtained from Marketwatch): Intel Corp. engages in the design, manufacture, and sale of computer products and technologies. It delivers computer, networking, and communications platforms. It operates its business through the following segments: Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Intel Security Group, Programmable Solutions, and All Other. The Client Computing Group segment consists of platforms designed for notebooks, 2 in 1 systems, desktops, tablets, phones, wireless and wired connectivity products, and mobile communication components. The Data Center Group segment includes workload-optimized platforms and related products designed for enterprise, cloud, and communication infrastructure market. The Internet of Things Group segment comprises of platforms such as retail, transportation, industrial, video, buildings and smart cities, along with a broad range of other market segments. The Non-Volatile Memory Solutions Group segment constitutes of NAND flash memory products primarily used in solid-state drives. The Intel Security Group segment composes of security software products designed to deliver innovative solutions that secure computers, mobile devices, and networks. The Programmable Solutions Group segment contains programmable semiconductors and related products for a broad range of markets, including communications, data center, industrial, military, and automotive. The All Other segment consist of results from other non-reportable segment and corporate-related charges. The company was founded by Robert Norton Noyce and Gordon Earle Moore on July 18, 1968 and is headquartered in Santa Clara, CA.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of INTC – February 2018

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 $232,192,483,121 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.69 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 42.55% Pass
6. Moderate PEmg Ratio PEmg < 20 19.05 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.31 Fail
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 1.69 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.07 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

EPSmg $2.51
MG Growth Estimate 2.46%
MG Value $33.64
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $36.34
MG Value based on 0% Growth $21.30
Market Implied Growth Rate 5.27%
Current Price $47.73
% of Intrinsic Value 141.88%

Intel Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising 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 $2.15 in 2014 to an estimated $2.51 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.27% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Intel Corporation revealed the company was trading above its Graham Number of $32.89. The company pays a dividend of $1.08 per share, for a yield of 2.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.05, which was below the industry average of 41.95, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.16.

Intel Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.16
Graham Number $32.89
PEmg 19.05
Current Ratio 1.69
PB Ratio 3.31
Current Dividend $1.08
Dividend Yield 2.26%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $29,500,000,000
Total Current Liabilities $17,421,000,000
Long-Term Debt $25,037,000,000
Total Assets $123,249,000,000
Intangible Assets $37,134,000,000
Total Liabilities $54,230,000,000
Shares Outstanding (Diluted Average) 4,793,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.26
Dec2017 $1.99
Dec2016 $2.12
Dec2015 $2.33
Dec2014 $2.31
Dec2013 $1.89
Dec2012 $2.13
Dec2011 $2.39
Dec2010 $2.01
Dec2009 $0.77
Dec2008 $0.92
Dec2007 $1.18
Dec2006 $0.86
Dec2005 $1.40
Dec2004 $1.16
Dec2003 $0.85
Dec2002 $0.46
Dec2001 $0.19
Dec2000 $1.51
Dec1999 $1.05
Dec1998 $0.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.51
Dec2017 $2.13
Dec2016 $2.18
Dec2015 $2.21
Dec2014 $2.15
Dec2013 $2.00
Dec2012 $1.91
Dec2011 $1.69
Dec2010 $1.27
Dec2009 $0.95
Dec2008 $1.06
Dec2007 $1.11
Dec2006 $1.04
Dec2005 $1.02
Dec2004 $0.83
Dec2003 $0.72
Dec2002 $0.70

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

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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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