People like to talk about where Intel fits in the tech world today, often basing their investment decision on whether they think the company will be able to keep up with many of its competitors rather than on whether the financial statements indicate a value opportunity. Intelligent Investors know to 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. 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 specific look at how Intel Corp. fares in the ModernGraham valuation model.
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Defensive Investor - must pass at least 6 of the following 7 tests: Score = 7/7
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
- Earnings Stability - positive earnings per share for at least 10 straight years - PASS
- Dividend Record - has paid a dividend for at least 10 straight years - PASS
- 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
- Moderate PEmg ratio - PEmg is less than 20 - PASS
- 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
- Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
- Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
|Value Based on 3% Growth||$28.93|
|Value Based on 0% Growth||$16.96|
|Market Implied Growth Rate||1.95%|
Balance Sheet - 12/28/2013
Earnings Per Share
Earnings Per Share - ModernGraham
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Intel Corp. fares extremely well in the ModernGraham requirements, passing every test of both the Defensive Investor and the Enterprising Investor. This is a company that appears to present low risk of financial strife and may present relative safety of principal. As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham's methods should feel very comfortable proceeding with further research into the opportunity. An example of further research would be to look into some competitors, such as by a review of ModernGraham's valuation of Hewlett-Packard Company (HPQ) and ModernGraham's valuation of Texas Instruments (TXN). From a valuation standpoint, the company looks very strong, having grown its EPSmg (normalized earnings) from $0.95 in 2009 to $2.00 for 2013. This level of growth easily supports the market's implied estimate for growth of 1.95%, and the ModernGraham valuation model returns an intrinsic value that exceeds the current market price. Therefore, the company appears to be undervalued at the current time.
The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Intel Corp? Where do you see the company going in the future? Is there a company you like better?
Disclosure: The author did not hold a position in Intel Corp (INTC) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.