INTEL DCF MODEL – 2022 Q1 | INTEL STOCK PRICE VS INTRINSIC VALUE.

June 20, 2022 0 By bullheadedbear
Is Intel a good investment?
Is Intel a buy?

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:

SharePad
Finbox

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Table of Contents

Intel DCF Model

Intel DCF Scenario Analysis

Intel DCF Model

Intel DCF – Assumptions & Forecast

Intel DCF Assumptions

 Tax Rate12.0%
 Discount Rate7.9%
 Perpetual Growth Rate2.0%
 EV/EBITDA Multiple6.5x
 Transaction Date13/06/2022
 Fiscal Year-End25/12/2022
 Current Price$39.18
 Shares Outstanding (m)4,089
 Debt (m)$37,247
 Cash (m)$38,696
INTC DCF Assumptions

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

Intel Revenue forecasts - Base Case
INTC Revenue Forecast – Base Case (2022-Q1)

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

INTC Unlevered Free Cash Flow - Base Case
INTC Unlevered FCF Forecast – Base Case

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

INTC Total Adjusted Unlevered FCF - Base Case
INTC Total Adjusted Unlevered FCF – Base Case
INTC Terminal Value - Base Case
INTC Terminal Value – Base Case

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)

Intel Net Present Value - Base Case
INTC Net Present Value – Base Case

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

Intel Market Value vs Intrinsic Value
INTC 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

Intel Enterprise Value
INTC 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.

Intel IRR

INTC IRR Calculation
INTC IRR Calculation

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

Intel Stock Price vs IRR
INTC 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

INTC Bear Case Revenue Forecast
Intel Bear Case Revenue Forecast
INTC Bear Case Revenue Forecast

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

INTC Bear Case - Unlevered Free Cash Flow Forecast
Intel Bear Case - Unlevered Free Cash Flow Forecast
INTC Bear Case – Unlevered 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

INTC Intrinsic Value vs Market Value - Bear Case
Intel Intrinsic Value vs Market Value - Bear Case
INTC 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

INTC IRR -  Bear Case
Intel IRR -  Bear Case
INTC IRR – 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

INTC Revenue Forecast - Bull Case
Intel Revenue Forecast - Bull Case
INTC Revenue 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

INTC Unlevered Free Cash Flow Forecast- Bull Case
Intel Unlevered Free Cash Flow Forecast- Bull Case
INTC Unlevered Free Cash Flow Forecast- Bull Case

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

INTC Intrinsic Value vs Market Value - Bull Case
Intel Intrinsic Value vs Market Value - Bull Case
INTC 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

INTC IRR -  Bull Case
Intel IRR -  Bull Case
INTC IRR – 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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Disclosure

I/we have open long positions in Intel. W may increase this position depending on market movements over the coming weeks.

This analysis has been written by a Bull Headed Bear analyst/author for Bull-Headed-Bear.com. I we receive no compensation for this post other than any payments received from ads or affiliate links.