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Model Vs. Market

Model Vs. Market – Intel

By September 28, 2015No Comments

“I’ve found that when the market’s going down and you buy funds wisely, at some point in the future you will be happy.” – Peter Lynch

In today’s Model Vs. Market post we’re looking at Intel. Intel’s products can be found in many of your favorite devices and the company has shown to be a consistent performer in a volatile market. The company generates attractive free cash flow and is debt-free if you account for its cash and short-term investments.

Company Profile

Intel Corporation is engaged in the design and manufacture of digital technology platforms used in a variety of end-user and enterprise computing. Its range of products include notebooks (Ultrabook devices), desktops, servers, tablets, smartphones, 2-in-1 systems and solutions spanning the Internet of Things (wearables, retail devices, transport systems) as well as software (McAffee) and services focused on security and technology integration. Its business is divided into: PC Client (PCCG), Data Center (DCG), Internet of Things (IOTG), Mobile and Communications (MCG), software and services (SSG) and all other.

The firm enjoys a global market presence and services a range of technology manufacturers such as OEMs (original equipment manufacturers), ODMs (original design manufacturers) and businesses from the computing and communications industries such as industrial and communications equipment manufacturers. The company was incorporated in 1989 and its headquarters are located in Santa Clara, California.

What are shares of Intel worth?

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The TagniFi DCF valuation model is indicating that shares of Intel are worth $34 which is 17% above the latest close price. Here are the key assumptions used to arrive at this value:

  • Revenue Growth – Over the last 5 years revenue has grown at an average rate of 6.4%. The model assumes the same growth rate for the next 4 years followed by a terminal growth rate of 2.5%.
  • Profitability – Over the last 5 years the EBITDA margin has averaged 42.8%. The model assumes this same margin going forward.
  • Depreciation – Depreciation in 2015 was 15.3% of revenue. The model assumes this same rate of depreciation going forward.
  • Income Taxes – The average effective tax rate for the last 5 years was 26.4%. The model assumes this same effective tax rate going forward.
  • Capital Investment – Over the last 5 years the company has spent 23.0% of its revenue on capital investments, net of dispositions. The model assumes the same level of investment going forward.
  • Working Capital – After netting out cash, short-term investments and short-term debt the company operates with negative working capital. The model assumes this will continue at the same rate as revenue grows.
  • Discount Rate – The assumed cost of capital is 10%. Reducing the cost of capital to 8% increases the valuation to $47 per share.

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This model was created by extrapolating the last 5 years of performance into the next 5 years of performance. Before making an investment decision you should run your own model with your own assumptions based on your own research of the company. Download a free copy of this model to perform your own valuation and let us know what you think shares of the company are worth on Twitter @tagnifi. For the full version with links to the TagniFi database, please download the full Discounted Cash Flow Analysis model.

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Disclaimer: The information on this web site is not intended to provide investment, tax, or legal advice, and nothing on the site should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by TagniFi or any third party. You alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation.