ModernGraham Valuation Of Intel

Nov. 8.13 | About: Intel Corporation (INTC)

Here is a look at how Intel (NASDAQ:INTC) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 7/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  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 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg 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 5 years ago - PASS

Valuation Summary (explanation of the ModernGraham valuation model):

MG Value $76.44
MG Opinion Undervalued
Value Based on 3% Growth $28.79
Value Based on 0% Growth $16.88
Market Implied Growth Rate 1.86%
NCAV -$0.75
PEmg 12.21
Current Ratio 2.26
PB Ratio 2.17
Click to enlarge

Key Data:

Balance Sheet - 9/30/2013 (an Introduction to the Balance Sheet)

Current Assets $31,350,000,000
Current Liabilities $13,875,000,000
Total Debt $13,157,000,000
Total Assets $90,551,000,000
Intangible Assets $15,901,000,000
Total Liabilities $35,099,000,000
Outstanding Shares 4,973,000,000
Click to enlarge

Earnings Per Share - Diluted

2013 (estimate) $1.86
2012 $2.13
2011 $2.39
2010 $2.01
2009 $0.77
2008 $0.92
2007 $1.18
2006 $0.86
2005 $1.4
2004 $1.16
2003 $0.85
2002 $0.46
Click to enlarge

Earnings Per Share - Modern Graham

2013 (estimate) $1.99
2012 $1.91
2011 $1.69
2010 $1.27
2009 $0.95
2008 $1.06
Click to enlarge

Conclusion:

Intel Corp is a very strong company, having passed every single requirement of both the Defensive and Enterprising Investors. In addition, the company appears to be undervalued significantly by Mr. Market. The market is implying only 1.86% growth in the earnings, but historically the growth rate is much higher. The EPSmg (normalized earnings) has grown from $1.06 in 2008 to an estimated $1.99 in 2013. Further, the PEmg is only 12.21, which should be low enough to attract the attention of value investors. As a result, potential investors should be intrigued by Intel and proceed with further research of the company.

What do you think? Is Intel undervalued or does Mr. Market have it right? Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer: The author did not hold a position in Intel Corp at the time of publication and had no intention of purchasing a position in the next 72 hours.