$INTC announced a strong third-quarter result this week but warned about deteriorating market conditions.  $INTC’s share price has dropped from US$16.99 to US$14.99 since the beginning of this week – an 11.8% decline.  We decided to have a look at $INTC with the Valuecruncher interactive tool to place an estimate on the intrinsic value of the company.

Valuecruncher valuation model of $INTC with interactive assumptions

Valuecruncher produces a valuation of US$17.92 for $INTC.  This is a current valuation (an estimate of intrinsic value) not a target price.  This valuation is 19.6% above the current share price of US$14.99.

Assumptions

In 2007 $INTC had revenues of US$38.3 billion and an EBITDA margin (profits) of 35.27%.  Reuters aggregates 35 analysts covering $INTC and these have mean estimates of 2009 and 2010 revenues of US$39.9 and US$42.8 billion respectively.  For our analysis we have used US$39.5 billion in 2008, US$41.5 billion in 2009 and US$43.0 billion in 2010.  We have forecast EBITDA margins remaining flat at 35% to 2010.  We have estimated capital expenditure in the US$4.95-5.35 billion range.  All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.

Other Model Assumptions:

Discount Rate: 11.0%.  We believe the discount rate is in the 9-11% range.  We have used the upper end of this range to reflect the deteriorating market conditions that $INTC have signalled.

Terminal Growth Rate: 3.5%.  The US economy grew at an average of 3.6% over the last five-years.  We have $INTC growing at around that rate in the long-term.

Our analysis incorporates the cash and debt on the $INTC balance sheet – Valuecruncher calculates a net debt number.

Based on our analysis and assumptions the current share price looks a discount to intrinsic value.  Play with our assumptions – what does your analysis say?

Disclosure: None

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