Intel Stock Valuation
Brandon O’Briant
Yongcheng Gao
BUSA 302
Professor: Dr. Mooney
June 28, 2016
Abstract
Founded in 1965, Intel has blazed a path to the forefront of manufactur-
ing and selling semiconductors. With continued advances in their technology
they continue to release new Core and Xeon processors every few years al-
lowing Intel to control nearly 80% of the total market today and 99% of the
data center market (Suzanne Frey, fool.com); for semiconductors that are
used in severs in both the private and public sectors, smart-phones, tablets,
notebook and desktop computers.
The results of our comparative analysis using Dupont and P/E ratios,
along with the results from the constant dividend growth model, we believe
that Intel is a choice stock compared to its competitors.
Further, using a 12-month price target of $33.89 and comparing that to
the current price it is trading at $31.61, we believe that Intel has a lucrative
and sound future worth investing in or should at least be a hold security for
the next year.
Contents
1. Industry Analysis
1.1 Current state of the industry and forecast going forward
1.2 Key Competitors
2. Comparative Ratio Analysis
2.1 Efficiency
2.2 Profitability
2.3 Leverage
2.4 Liquidity
3. Valuation Analysis
3.1 Constant Dividend Growth Model
i Estimated Annual Dividend Growth
ii Estimated CAPM Discount Rate
iii Estimated Price Today (P0)
3.2 Relative Valuation
i Price-to-Earnings Ratio Estimation of Price Today (P0) of
comparables x by EPS of our firm
ii Free Cash Flows (FCF)
4. 12-Month Price Target
1
Chapter 1
Industry Analysis
1.1 Current State of the Industry and Fore-
cast
In May 2016, the World Semiconductor Trade Statistics (WSTS) released its
forecast for the world semiconductor industry. They believe there will be a
decline of 2.4% in 2016, with a rebound in growth in 2017 and 2018. The
sharpest decline will be in the Americas.
That being said, there are several other recent forecasts, besides WSTS,
for the 2016 semiconductor market, which also points to a decline in 2016.
This decline is attributed to the fact that in 2015 the industry finished with a
slight 0.2% decline due to the worst first quarter since the recession in 2009,
which in turn contributed to the 1st quarter 2016 semiconductor market
declining 5.5% from 4Q 2015 (Semiconductor Intelligence).
Such a gloomy forecast is contradicted by other agencies such as, Databeans
2
who graciously project a 3.0% growth and the folks at Semiconductor In-
telligence who are calling a 1.0% growth in 2016. Further, the analyst at
Semiconductor Intelligence are projecting 7.5% growth.
This is largely due to the signs of improvement in 2Q 2016; likely from re-
leases in GPU’s from AMD and Nividia, new processor architecture emerging
from Intel, needs from automotive industries to merge with tech, the realm
of AI controlled cars sweeping the world, drones taking over the skies, and
other tech-speed heavy industries.
In conclusion, even though this back and forth ”they-said, we-said” de-
bacle is underway, we believe given the needs of the tech world to be met
by semiconductors that operate faster, cooler, and with less voltage, this
industry should continue to show an increase.
