Is Intel Corporation a Buy?

Thanks to massive scale, Intel (NASDAQ: INTC  ) has a competitive advantage over its peers as it outspends them in manufacturing and in research and development. That means Intel, for the most part, will have the most cutting-edge semiconductor manufacturing and the most advanced offerings for its clients. With economies of scale like this, Intel could make an excellent long-term holding if bought at the right price. But is Intel cheap enough at today's prices?

Fool contributor Daniel Sparks recently set out to estimate the value of Intel's intrinsic per-share value. Using a discounted cash flow valuation model, some conservative net income growth expectations,and a 10% discount rate, Daniel thinks shares are worth $30.60. Find out why in the following video.

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  • Report this Comment On March 26, 2014, at 1:25 PM, dmeredit wrote:

    I think this is a fairly conservative opinion on the growth rates stated, BUT - and here's why I think they are trading at a discount - there's too much uncertainty in the PC, semi-conductor and overall technology market at the moment to predict anything beyond a couple of years. So if the analysis is using a 5 or 10 year model to derive the Fair Value based on DCF, I would say that it is inherently flawed. You only have to look at the tectonic shifts in the market in the less than 4 years (the ipad was launched in April 2010) and how this has impacted traditional markets for Intel products (e.g. the drop in popularity of the laptop and the rise of the tablet) to see how these future trends could impact Intel. I would be delighted to see $30 / share, but I suspect this uncertainty will continue to weigh on Intel until they put their R&D spend into areas that emerge, rather than continue as cash cows.

  • Report this Comment On March 26, 2014, at 1:34 PM, TMFDanielSparks wrote:

    @dmeredit,

    Thanks for your thoughts. One of the things about DCF models is that it's really the initial years that count the most. Numbers beyond five years are discounted so heavily that they have much less meaning.

    In other words, the discount rate helps take care of the fact that projections beyond five years are pretty meaningless. Even more, that's why we would require a margin of safety to fair value. And you can adjust that margin of safety based on the risk you see to your initial estimates.

    Suppose the fair value of shares is $30, what margin of safety would you require in order to pick up shares? So what percentage of discount to fair value would you look for? Thanks!

  • Report this Comment On March 26, 2014, at 1:56 PM, TMFDanielSparks wrote:

    @dmeredit,

    I'd like to correct the wording I used. Projections beyond five years are not "pretty meaningless." They are still meaningful -- albeit much less meaningful than the projections earlier in the trajectory.

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