Good Evening folks!
I am a student that has recently found a passion for financial analysis and evaluation of companies. In fact, i would like to be a Financial Analysis my self in the future, thus i am practicing with some fundamentals and analysis for now! Sharing here so you can judge and maybe give some advice c:
So, let's start!
CAPM and Beta
- Levered Beta: 0.71
- Unlevered Beta: 0.56
- CAPM: 7.22% which will be used in the Discounted Cash Flow
Evaluation Methods
To evaluate the fair price per share i used 3 approaches and the calculated the average of them:
| Method | Price | Description |
|---|---|---|
| Adjusted Graham | $34.39 | Used the Adjusted formula which has: P/E of 7; growth rate of 1%; AAA Bond yield of 4.77% |
| CFO Evaluation | $26.56 | 7.22% Discount rate and 1%growth rate. It gives a MCap of 108.88 B |
| Discounted Cash Flow | $37.13 | Here i used analysts growth rate for next year and projected the growth rate of 17% for 5 years. (I did not discounted debt from it) |
| Average Price per Share | $36.08 | The Average price of those 3 methods |
Current price is $25.20, which puts Intel in the Undervalued category
Risk Analysis
By Observing the historical variation of the Free Cash Flow of Intel for the last 13 years, we have the following data:
| Risk Free Rate | 3.89% |
|---|---|
| Market Expected Return (consensus) | 9.87% |
| Average Return | 8.18% |
| Adjusted Return | 4.30% |
| Variance (risk rate) | 10.57% |
| adjusted Risk | 6.68% |
| Standard Deviation | 32.51% |
The company doesnt have that much risk based on historical data set, which without factoring possible outliers in the future, we can declare the stock a low risk stock, with its adjusted risk of only 6.68% and an adjusted return of 4.30%
Ratios
| Cash Burn Rate | 0.82 | The company is burning its Cash and Cash Equivalents in an unexpected rate |
|---|---|---|
| Month Remaining | 9.84 | The company can cover its short term expenses only for 9 months more without taking any debt |
| Working Capital | 1.86 | The company can cover its short term expenses with its current assets |
| Acid Test | 0.16 | The company cannot cover its short term expenses with only its cash and cash |
| ROE | -0.45% | Non that bad but not good |
| ROA | -0.41% | Non that bad but not good |
Ratios Comments
- We can clearly see that the company cannot cover its short term dues within 9 months only by its Cash, and if the company doesn't do something, which they will, it can go tits up.
- Its current assets do cover its short term expenses if Cash isnt enough, liquidation of current assets cn cover it.
- Acid Test tells us that they will take some short term debts to cover the short term expenses.
- ROE and ROA arent that bad, they tells us that the company is in a situation between falling and recovering.
Conclusions
As we can see from this quick analysis, the company isnt in that great shape, but still, it is not dying neither! Taking in mind the macroeconomics and geopolitics factors, it is reasonable the current short term down trend of the stock.
- We can see this with the CFO analysis, which factors only the current CFO and project it t the near future, this gives us the indication that in the short period, the stock will continue to drop in value following the overall market trend.
- With the Adjusted Graham formula, e can see that the long term intrinsic value of the company is much much higher that the current one.
- Meanwhile the Discounted Cash Flow model suggests us a price near the Adjusted Graham ones, but this shall be take in consideration if we have a FCO average growth of 17% for the next 5 years, which is hard with the growing competition.
I will set its fair value as the average of those 3 results: $36.08 (this price valuation doesnt take in count future and possible developments, good or bad, and it is the value of the company based on todays data).
Risk Analysis was used to determine whether this is a dangerous investment, with turns out to be not. Intel has a low market risk: 6.68% (Variance – Risk Free Rate). This result is understandable due to the fact that our modern world runs on chips. which intel is a manufacturer. We can expect at least a 30% surprise maximum variation maximum for the FCF variation factoring unexpected events.
My overall Conclusion: Expecting some news from the company about its current short term expenses, probably some cuts or more workers laid off. In the short term the price is destined to plunge more, but in the long run i still see a good value in it. I would by in, average down probably, and hold for at least 5 years before thinking of selling.
What do you think? Do you have any suggestions? Advices? I would like to improve and learn more from you guys! Feel free to comment 😀
TLDR: Fair Value of $36.08, The stock is Undervalued for the Long Run, Short Term price will fall
Again, i did not take in mind macroeconomics, geopolitical risks etc, this evaluation is based only on the current data available and shall not be taken as an investment advice
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