INTEL DCF MODEL – 2022 Q1 | STOCK PRICE VS INTRINSIC VALUE.
In February 2022, I shared a complete analysis of Intel following the 2021 annual results – You can see this analysis here.
Intel recently released their 2022 Q1 results and management guidance, and the outlook and projections have changed due to the current macroeconomic conditions.
In this post, I will take you through the adjusted DCF model for Intel, considering the changes in assumptions and forecasts. We can then try to understand Intel’s intrinsic value and see if Intel is a good investment.
To build these discounted cash flow models, I use financial data exported from SharePad as well as the Intel Investor Relations website. I also use Finbox and its models as a way of auditing my data, calculations, and my assumptions. If you want to learn more about these investor tools, see the reviews below:
Table of Contents
Intel DCF Model
Intel DCF Scenario Analysis
Intel DCF Model
Intel DCF – Assumptions & Forecast
Intel DCF Assumptions
|Perpetual Growth Rate||2.0%|
|Shares Outstanding (m)||4,089|
The main changes to the assumptions since the previous Intel DCF are as follows:
Discount Rate: The discount rate has increased slightly due to a higher cost of debt influencing the weighted average cost of capital (WACC), which we use as the discount rate.
EV/EBITDA Multiple: We use this as the exit multiple in the terminal value calculation. I have lowered the EV/EBITDA multiple to be on the safe side and ensure the calculations lean more towards safety than over-optimistic.
Transaction Date – this has obviously changed as I have set the calculations to start from the date the model was created to ensure accurate cash flow calculations.
Share Price: Again, the current share price has been changed in the model to reflect the share price at the time of this analysis.
Debt & Cash: The latest debt and cash figures from the 2022 Q1 report have been used.
CAPEX: Although not in the above assumptions, I have increased the CAPEX forecasts within the model due to Intel’s large spending.
Intel Revenue Growth Forecast
As previously mentioned, I have reduced the revenue growth forecasts due to the current macroeconomics and the subsequent reduction in management guidance. These forecasts are slightly lower than the analysts’ average and median forecasts..
For 2022, we have revenue declining by 4%. However, revenue growth then picks up in 2023 and continues through to 2026 at 3%, 7%, 7% and 8% annual growth rates.
lntel Unlevered Free Cash Flow Forecast – Base Case DCF Model
With these new assumptions and revenue growth forecasts, we have a 2022 unlevered free cash flow forecast of $2.2 billion. Unleverered FCF then continues to rise to £11.7 billion in 2026.
Intel Discounted Cash Flow Model – DCF
Discounted Cash Flow
Unlevered free cash flow is adjusted due to us currently being in a fraction of a year, therefore can not claim access to the entire year’s cashflows.
The terminal value used in the model is an average of the EV/EBITDA exit and the growth exit.
The table above shows you the total adjusted unlevered free cash flows is $253.7 billion.
Net Present Value (NPV)
If we add the present value of unlevered FCF to the present value of terminal value, we get a total net present value of just over $200 billion.
If we add cash and subtract debt, we end up with an equity value of $202 billion.
We can then divide the equity value by the shares outstanding to calculate the equity value per share. In this case, Intel’s equity value or intrinsic value per share is $49.38.
Intel Market Value vs Intrinsic Value
At the time of this analysis, the market stock price is $39.18. Therefore, with an intrinsic value of $49.38, we have an upside of $10.20 or 26%.
Intel Internal Rate of Return – IRR
Intel Enterprise Value
At the time of writing, the market cap is $160 billion. If we add debt and subtract cash, we get an enterprise value of $159 billion.
We can use the enterprise value as our initial investment amount and the unlevered free cash flows to see the total transaction/investment cash flows.
Using the IRR formula, we can see that Intel has an IRR of 13.7% for the base case scenario.
Intel Stock Price vs IRR
We have established that at the current stock price of £39.18, the IRR is 13.7%. If the stock price increased by 20% to $47.02, the IRR would reduce to 9.0%. If the stock price dropped a further 20%, the IRR would increase to 19.8%.
Intel Discounted Cash Flow Model – Scenario Analysis
The above DCF model was based on the base case scenario. Below is an overview of a bear case and bull case scenario to compare possible situations and the impact on intrinsic value.
Intel DCF – Bear Case Scenario
Intel Revenue Growth Forecast – Bear Case
For the bear case scenario, we have revenue growth of -6% in 2022, followed by another year of decline at -3% in 2023. Growth is then flat in 2024. We then see a return of positive growth in 2025 of 6%, followed by 8% in 2026.
Intel Bear Case Free Cash Flow Forecast
The bear case unlevered free cash flow forecast starts with $1.8 billion in 2022. There is a significant increase in 2023, followed by a drop in 2024. The decline in 2024 is due to inventories, payables and receivables returning to consistent levels. The change in net working capital impacts the unlevered free cash flow. Unlevered free cash flow then increases to $9.3 billion in 2026.
Intel Intrinsic Value vs Market Value – Bear Case
The market value at the time of writing is $39.18. The intrinsic value per share for the bear case scenario is $40.60, providing a potential upside of $1.42 or 3.6%.
Intel Internal Rate of Return – Bear Case
At the current market price of $39.18, the bear case has an IRR of 8.6%. If the stock price increases by 20% to $47.02, the IRR is 4.1%. Alternatively, if the stock price dropped 20% to $31.34, the IRR would increase to 14.5%.
Intel DCF – Bull Case Scenario
Intel Revenue Growth Forecast – Bull Case
For the bull case, the revenue growth is still negative for 2022, with a decline of -4%. 2023 then returns to positive growth at 3%, followed by 7% in 2023. 2025 has strong growth at 13%, followed by strong but lower growth of 11% in 2026.
Intel Bull Case Free Cash Flow Forecast
The 2022 unlevered free cash flow forecast for the bull case scenario is $2.2 billion. This then increases over the years to $13 billion in 2026.
Intel Intrinsic Value vs Market Value – Bull Case
The intrinsic value per share for the bull case is $53.88. That provides a potential upside of $14.70 or 37.5%
Intel Internal Rate of Return – Bull Case
The IRR for the bull case is 16%. If the stock price increased by 20% to $47.02, the IRR would reduce to 11.2%. If the stock price decreased by 20% to $31.34, the IRR would increase to 22.2%.
I hope you have enjoyed this analysis. Keep a look out for other analysis and models, or subscribe below to be notified of new posts.
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I/we have open long positions in Intel. W may increase this position depending on market movements over the coming weeks.
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