IS INTEL A GOOD INVESTMENT?
Is Intel a good investment? What is Intel’s fair value / intrinsic value? Is Intel a buy at current valuations? These are the question we are trying to find out in the following fundamental analysis.
The data used in the below analysis and discounted cash flow model comes from a combination of SharePad, Finbox, and the Intel Investor Relations website. Additionally, the dcf model uses personal assumptions, which are shared below.
Table of Contents
- Analysts Targets
- Comparable Analysis
- Intel Valuation Multiples
- Intel DCF – Base Case – Assumptions & FCF
- DCF – EBITDA Exit – Valuation & IRR
- DCF – EBITDA Exit – Sensitivity Analysis
- DCF – Perpetual Growth Rate – Valuation & IRR
- DCF – Perpetual Growth Rate – Sensitivity Analysis
- Intel DCF – Scenario Analysis
- Intel DCF – Bear Case
- Intel DCF – Bull Case
Intel Company Overview
Intel Company Description
Intel is the world’s largest chipmaker. It designs and manufactures microprocessors for the global personal computer and data center markets.
Intel pioneered the x86 architecture for microprocessors. It was the prime proponent of Moore’s law for advances in semiconductor manufacturing, though the firm has recently faced manufacturing delays.
While Intel’s server processor business has benefited from the shift to the cloud, the firm has also been expanding into new adjacencies as the personal computer market has stagnated. These include areas such as the Internet of Things, artificial intelligence, and automotive.
Intel has been active on the merger and acquisitions front, acquiring Altera, Mobileye, and Habana Labs in order to bolster these efforts in non-PC arenas.
|Current Share Price (m)||$47.71||Revenue (m)||$79,024|
|Shares Outstanding||4,072||EBITDA (m)||$33,874|
|Market Cap (m)||$194,275||EBITDA Margin||43%|
|Total Debt (m)||$38,101||Debt / EBITDA||1.12x|
|Enterprise Value (m)||$203,963||P/E (YE)||9.8|
Intel Revenue Breakdown – Region
Intel Revenue Breakdown – Product
|Internet of Things||$5,384||6.8%|
Intel Share Price History
|Current Price:||47.71||52 WK Low:||68.26||52 WK High:||44.65|
Intel Shareholder Ownership
|Vanguard Group Inc||354.0||8.7%|
|State Street Corporation||171.0||4.2%|
|BlackRock Fund Advisors||133.0||3.3%|
|Vanguard Investments Australia Ltd||118.0||2.9%|
|Capital Research and Management Company||115.0||2.8%|
|Fidelity Management & Research Company LLC||113.0||2.8%|
|Capital Research & Mgmt Co – Division 3||109.0||2.7%|
|Geode Capital Management LLC||76.5||1.9%|
|Invesco Capital Management LLC||64.2||1.6%|
|Northern Trust Corp||50.8||1.2%|
|SPDR State Street Global Advisors||43.2||1.1%|
|State Street Global Advisors (Aus) Ltd||41.9||1.0%|
Intel Fundamental Analysis
Intel Income Statement
Intel Income Statement Waterfall – 2021
Revenue of $79,024 is up from $77,867 in 2020. Cost of sales is 44.6% of revenue compared to 44% in 2020. Operating expenses of $21,733 do not include restructuring costs of $2,626, which are included in other income net, along with gains (losses) on equity investments.
5 Year View
Revenue is growing year on year. EBITDA at 42.9% is below the previous three years and only slightly above 2017. Net income margin of 25.1% has been reducing over the last three years. However, 2017 was significantly lower.
Intel Year Income Statement
|Cost of Sales||-23,663||-27,111||-29,825||-34,255||-35,209|
|Other Income, net||2,267||-53||1,146||1,706||103|
|Income Before Taxes||20,352||23,317||24,058||25,078||21,703|
Growth is negative for EBITDA and net income, and lower in 2021 than 2020 and 2019. Revenue growth and gross profit growth are positive. However, they are low at 1.5% and 0.5%, both are also lower than 2020.
Intel Balance Sheet
Intel Assets – Fiscal Year End 2021
Short term investments include corporate and government debt as well financial institution instruments. Other current assets include assets held for sale ($6,942). Property, plant and equipment comprise of land and buildings ($40,039m), machinery and equipment ($86,955m) and construction in progress ($21,545m), but deducts the accumulated depreciation ($85,294). Goodwill and intangibles are predominantly goodwill ($26,963m) from previous year’s acquisitions.
Intel Liabilities – Fiscal Year End 2021
Other current liabilities include accrued compensation and benefits, and derivative liabilities. Other non-current liabilities include deferred income taxes, operating leases and derivative liabilities.
Intel Equity – Fiscal Year End 2021
Intel Balance Sheet – 5 Year View
Intel Cash Flow Statement
Intel Cash Flow From Operations – Fiscal Year End 2021
Other operating activities include stock-based compensation and restructuring charges. Depreciation expense is the depreciation and amortisation of intangibles.
Intel Cash From Financing – Fiscal Year End 2021
Intel bought back $2,415 million of common stock in 2021. Debt issued was $4,974m, with debt repaid being $2,500m. $5,644m paid back to shareholders in dividends. Other financial activities include proceeds from the sale of common stock through employee incentive plans.
Intel Cash From Investing – Fiscal Year End 2021
Capital expenditures include additions to PP&E and additions to held for sale PP&E. Other investing activities include net debt investments, net trading assets and net equity investments.
Intel Cash Flow Statement – 5 Year View
The cash balance at the end of 2021 was $4,827m, which was down from 2020. However, cash is still higher than in previous years. The reduction in cash was driven by a reduction in cash from operations and increased cash spent on investing.
Intel Valuation Review
Analysts View of Intel
Intel Price Target – Analysts’ Price Targets
|Analyst Name||Firm||Position||Price Target||Action|
|Ingo Wermann||DZ BANK AG||Hold||Downgraded|
|Chris Caso||Raymond James||Hold||Upgraded|
|Gus Richard||Northland Securities||Buy||62.00||Reiterated|
|Sujeeva De Silva||Roth Capital||Hold||48.00||Maintained|
|Vivek Arya||Bank of America Securities||Sell||52.00||Maintained|
|Hans Mosesmann||Rosenblatt Securities||Sell||40.00||Maintained|
|Ross Seymore||Deutsche Bank||Hold||55.00||Maintained|
|Vijay Rakesh||Mizuho Securities||Hold||53.00||Maintained|
|Ambrish Srivastava||BMO Capital||Hold||50.00||Maintained|
|Joseph Moore||Morgan Stanley||Hold||55.00||Reiterated|
|Srini Pajjuri||SMBC Nikko||Buy||62.00||Maintained|
|Aaron Rakers||Wells Fargo||Hold||60.00||Reiterated|
|Tristan Gerra||Robert W. Baird||Buy||60.00||Maintained|
|John Pitzer||Credit Suisse||Buy||70.00||Maintained|
|Toshiya Hari||Goldman Sachs||Sell||44.00||Maintained|
|Harlan Sur||J.P. Morgan||Buy||64.00||Maintained|
|Edward F. Snyder||Charter Equity||Hold||Maintained|
|Ivan Feinseth||Tigress Financial||Buy||72.00||Reiterated|
|William Stein||Truist Financial||Hold||52.00||Maintained|
|David Williams||Benchmark Co.||Hold||Maintained|
|C J Muse||Evercore ISI||Sell||55.00||Maintained|
|Unknown Analyst||Westpark Capital||Hold||Initiated Coverage|
|Weston Twigg||Piper Sandler||Buy||70.00||Maintained|
|Ianjit Bhatti||Atlantic Equities||Sell||45.00||Downgraded|
|Matt Ramsay||Cowen & Co.||Buy||81.00||Reiterated|
Only 26% of analysis rate Intel as a buy, with 51% with a rating of hold and the other 23% rating the stock a sell. 66% of analysts’ maintained their view, with another 20% reiterating. 8% downgraded the stock, and only 3% upgraded. The analyst’s price targets range from $40 to $81, with the average being $56.
Analysts’ Consensus – Is Intel a Buy?
Analysts’ Recent Actions for Intel Stock
Intel Comparable Analysis
Caution should be taken as no two companies are precisely the same. Companies can be at different stages of maturity, have different operating segments, operate in different geographical regions etc. Best efforts have been made to use similar companies in the below analysis.
Companies used in determining the comp values are as follows:
Intel Corp, Microchip Technology, NVIDIA Corp, Advanced Micro Devices Inc, Broadcom Inc, NXP Semiconductor, Taiwan Semiconductor, Qualcomm Inc, Texas Instruments, Applied Materials Inc and Micron Technology.
Intel P/E – Price to Earnings vs Competitors
Intel’s P/E ratio at 8.7x is significantly lower than all competitors. Forecasted P/E is again lower than the competition, with the exception of Micron Technology.
Intel P/S – Price to Sales vs Competitors
Intel’s P/S multiple is also lower than all the competitors at 2.5x and considerably lower than the majority. The average is 8.14x which is more than three times higher than Intel.
Intel P/FCF – Price to Free Cash Flow vs Competitors
Only Broadcom has a lower P/FCF at 18.9x than Intel at 20.2. The average is 34.68. However, Intel’s forecasted P/FCF is considerably higher than the average and all competitors at 205.3.
Intel EV/EBITDA vs Competitors
Intel’s EV/EBITDA at 6.8x is significantly lower than the average and most competitors. On the other hand, NVIDIA and AMD are considerably higher than the majority.
Yet again, Intel at 2.9x is lower than the average of 8.6x and lower than all other competitors. NVIDIA is again the highest.
Intel Valuation Comps Analysis
If we take the average valuation multiples from Intel and its competitors and apply that multiple to Intel, we can see how Intel could be valued. The below shows the values based on Intel’s current financial situation with the comp averages.
Based on average multiples and current financials, Intel has a current valuation range of $157 – $175.
Using the same average valuation multiples, but adapting the financials to the 5-year forecasts (our base case DCF – see below), the 5-year Intel stock ranges from $202 – $229.
Intel Valuation Multiples vs Historical
Intel’s EV/EBITDA multiple at 6.8x is lower than the 10-year average of 7.3x. With only last year, 2020, and 2012 lower. The highest value was 9.1x in 2017.
Intel’s 2021 EV/Sales at 2.9x is lower than the average at 3.2x. The lowest EV/Sales multiple was in 2012 at 2.1x, and the highest was in 2019 at 4.0x.
Intel P/E – Price/Earnings Multiple
2021 P/E ratio at 8.7x is lower than the average at 12.1x. It is also the lowest value in the previous ten years. The highest P/E ratio was in 2014 at 15.9x.
Intel P/S – Price/Sales Multiple
At 2.5x, Intel’s P/S ratio is again lower than the average at 2.9x. 2013 was also 2.5x, and 2012 was the only lowest multiple at 2.0x.
Intel P/FCF – Price/Free Cash Flow
P/FCF –P/FCF is the only valuation multiple for Intel that is higher than the 10-year average. 2021 P/FCF was 20.2x, with a 10-year average of 15.8x. Only 2017 at 21.6x was higher.
Intel DCF – Assumptions & Base Case FCF
Intel DCF Assumptions
|Perpetual Growth Rate||2.0%|
|Shares Outstanding (m)||4,072|
In addition to the above assumptions, the below DCF model is based on our base case scenario, which assumes a revenue growth over the next five years of -4%, 4%, 5%, 8%, 10%. These assumptions are slightly lower than analysts’ forecasts. The comparisons between our bear case, base case & bull case scenarios are detailed later in this analysis.
lntel Cash Flow Forecast – Base Case DCF Model
According to our model, free cash flow will reduce dramatically in 2022 due to an expected decline in revenue and increased CAPEX. The company is in a transition period which will impact the short term cash flows. The cash flows should then increase as the investment begins to pay off.
Intel DCF – EBITDA Exit – Valuation & IRR
Intel Terminal Value – EBITDA Exit
|Final Forecast EBITDA (m)||$44,337|
|TERMINAL VALUE (m)||$339,031|
Intel Intrinsic Value – EBITDA Exit
|Enterprise Value (m)||$324,750|
|Plus: Cash (m)||$28,413|
|Less: Debt (m)||$38,101|
|Equity Value (m)||$315,062|
|EQUITY VALUE / SHARE||$77.37|
Intel Intrinsic Value vs Market Value- EBITDA Exit
Based on the model assumptions and using the EBITDA exit multiple of 9, the intrinsic value for Intel is $77.37. Providing a potential upside of $29.66.
Intel Investment – Internal Rate of Return (IRR)
|Target Price Upside||62.2%|
|Internal Rate of Return (IRR)||18.8%|
Intel Stock Price vs Internal Rate of Return (IRR)
Based on the model assumptions and the current market share price of $47.71, there is an internal rate of return of 18.8%. If the stock price dropped 20% to $38, the IRR would be 24.4%. If the stock price increases 20% to $57, the IRR would still be 14.4%
Intel DCF – EBITDA Exit – Sensitivity Analysis
Variables Influence on Model
Changes to the revenue have the most significant impact on this model by a considerable margin. You can also see that a positive shift in revenue has a more significant impact. Next, changes to the EV/EBITDA multiple and cost of sales have very similar effects on the model. The discount rate has the most negligible impact.
The intrinsic value calculated from the model is using the assumptions: EBITDA Exit Multiple of 9x, WACC of 7.4% and final forecast EBITDA of $44,337. The tables to the right show the intrinsic value based on different assumption scenarios.
Impact on Intel Intinsic Value Price Per Share
When reviewing different EV/EBITDA multiples with different final forecasted EBITDA results, we see that the lowest value per share is $59. This is based on an EV/EBITDA exit multiple of 7x and a final EBITDA figure of $42,120 million, which is -5% of the base case forecast. Conversely, the highest value per share is $97, based on an EV/EBITDA exit multiple of 11x and a financial EBITDA figure of $46,554 million, which is +5% of the base case forecast.
When reviewing different discount factors (WACC) with different final forecasted EBITDA results, we can see the lowest value per share is $71. This is based on a discount factor of 8.2% and a final EBITDA figure of $42,120 million, which is -5% of the base case forecast. Conversely, the highest value per share is $84, based on a discount factor of 6.6% and a financial EBITDA figure of $46,554 million, which is +5% of the base case forecast.
Intel DCF – Perpetual Growth Rate – Valuation & IRR
Intel Terminal Value – Perpetual Growth
|Final Forecast FCFf (m)||$16,542|
|Perpetual Growth Rate||2.0%|
|TERMINAL VALUE (m)||$311,499|
Intel Intrinsic Value – Perpetual Growth
|Enterprise Value (m)||$262,768|
|Plus: Cash (m)||$28,413|
|Less: Debt (m)||$38,101|
|Equity Value (m)||$253,080|
|EQUITY VALUE / SHARE||$62.15|
Intel Intrinsic Value vs Market Value
Based on the model assumptions using the perpetual growth rate, the intrinsic value is $62, which is $14 higher than the current market value (at the time of analysis).
Intel Investment – Internal Rate of Return (IRR)
|Target Price Upside||30%|
|Internal Rate of Return (IRR)||14%|
Intel Stock Price vs Internal Rate of Return
Based on the model assumptions and the current market share price of $47.71, there is an internal rate of return of 14%. If the stock price dropped 20% to $38, the IRR would be 18.9%. If the stock price increases 20% to $57, the IRR would be 9.3%.
Intel DCF – Perpetual Growth Rate – Sensitivity Analysis
Variables Influence on Model
Changes to revenue have the most significant impact on this model, followed by changes to the cost of sales. A positive change to revenue has a slightly more significant impact on the model than a negative change. The perpetual growth rate shows less of an effect. However, this chart is based on relative % movements. Therefore, the perpetual growth rate could vary on a much larger scale than the other variables. For example, a change from 2% to 3% is a 50% increase, which you are less likely to see for the other variables. The discount rate has the most negligible impact on the model.
The model assumptions show a perpetual growth rate of 2%, WACC of 7.4% and final forecast FCFf of $16,128. The tables to the right show the intrinsic value based on different assumption scenarios.
Impact on Intrinsic Value Per Share
When reviewing different perpetual growth rates with different final forecasted free cash flow results, we see the lowest value per share is $56. This is based on a perpetual growth rate of 1.6% and a final free cash flow figure of $15,715 million, which is -5% of the base case forecast. Conversely, the highest value per share is $72, based on a perpetual growth rate of 2.6% and a financial free cash flow figure of $17,369 million, which is +5% of the base case forecast.
When reviewing different discount factors with different final forecasted free cash flow results, we can see the lowest value per share is $51. This is based on a discount factor of 8.2% and a final free cash flow figure of $15,715 million, which is -5% of the base case forecast. Conversely, the highest value per share is $78, based on a discount factor of 6.6% and a financial free cash flow figure of $17,369 million, which is +5% of the base case forecast.
Intel Discounted Cash Flow Model – Scenario Analysis
The above DCF model was based on the base case scenario. Below is an overview of the bear case and bull case scenario.
Intel DCF – Bear Case Scenario
Intel Revenue Growth Forecast – Bear Case
For the bear case scenario, we have set the revenue growth to be -4% in 2022 as per the analysts and management expectations. However, rather than a 4% increase in 2022, we have 0% growth. This is followed by small growth that rises slightly. The bear case represents the investments in Intels transition paying off, but on a much slower and smaller scale than guided by management.
Intel Bear Case Free Cash Flow Forecast
Bear case free cash flow forecast starts at $2,396 million, a significant drop from 2021. FCF then grows to $15,368 million in 2026.
Intel Intrinsic Value vs Market Value – Bear Case
The current market value is $47.71. For the bear case scenario, using the EBITDA exit multiple for terminal value, the intrinsic value is $65.09. Therefore, 17.38 higher than the current market value. If we use the perpetual growth rate for the terminal value, the intrinsic value is $53.15, which is $5.44 higher than the current market value of $47.71.
Intel DCF – Bull Case Scenario
Intel Revenue Growth Forecast – Bull Case
The bull case has revenue growth of -2% in 2022, compared to the -4% in the base case. The growth then increases to the top end of management guidance. The bull case is based on the investments and transition of Intel delivering slightly better than expected.
Intel Bull Case Free Cash Flow Forecast
The bull case free cash flow forecast starts at $2,987 million, which is still considerably lower than 2021. However, FCF then increases to $24,130 million in 2026.
Intel Intrinsic Value vs Market Value – Bull Case
The bull case EBITDA exit DCF model provides an intrinsic value of $89.85. Therefore, $42.14 higher than the current market value. If we use the perpetual growth rate DCF model, the intrinsic value is $70.62, which is $22.91 higher than the current market value.
Intel Valuation Summary
Intel Value Valuation Football Field Chart
Is Intel a good investment?
Is Intel a buy at current valuations?
The current stock price is at the lower end of the 52-week trading range and the analysts’ price targets.
The comps valuations are significantly higher than current prices due to Intel’s low valuation multiples compared to competitors.
The DCF models all returned an intrinsic value above the current market value. The base case provides an average upside of 46.1%. The bear case even offered a 23.9% upside, and the bull case had a 68% upside potential.
Intel is currently going through a transition period which could cause some short term volatility. However, if they manage to deliver on their transformation plans, there is potential for the Intel stock to be a good investment.
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