Intel is the largest chipmaker in the world. It develops and manufactures microprocessors and platform solutions for the global personal computer market. Intel pioneered the x86 architecture for microprocessors.
I estimated the firm's WACC today at 12.51% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Average Annual Growth FCF: approx. 44%
CAGR FCF: approx. 27%. Consensus Forecast Industry 5-Year Growth: approx. 17% per year. Consensus Forecast Company 5-Year Growth: approx. 12% per year.
Scenario 1
Assuming the company achieves a 5-year growth rate in FCF of 12% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
The firm's future cash flows, discounted at a WACC of 12.51%, give a present value for the entire firm (Debt + Equity) of $157,165 million. If the firm's fair value of debt is estimated at $4000 million, then the fair value of the firm's equity could be $153,165 million. $153,165 million / 5490 million outstanding shares is approximately $28 per share and a 20% margin of safety is $22/share.
Scenario 2
According to Intel, 2010 was a banner year:
2010 was a record year for us. Strong market growth in the business and consumer PC market segments as well as the continued build-out of the data center, the leadership of our product portfolio, and improvements to our cost structure all contributed to the most profitable year in our history. Revenue increased 24% in 2010 compared to 2009. Our 2010 gross margin percentage of 65.3% increased by 9.6 percentage points from 2009, primarily driven by lower factory underutilization charges, higher microprocessor average selling prices, lower platform (microprocessor and chipset) unit cost, and higher platform unit sales. We expect continued strength in emerging markets coupled with the build-out of the cloud computing infrastructure to contribute toward a 2011 revenue growth percentage in the mid- to high-teens. This expectation is also inclusive of the recently completed acquisition of the WLS business of Infineon and the expected acquisition of McAfee in the first quarter of 2011.
Intel's 2010 Free Cash Flow was ~ $11.5B; a YOY increase of ~ 73%.
Discounted Cash Flow Valuation
The firm's future cash flows, discounted at a WACC of 12.51%, give a present value for the entire firm (Debt + Equity) of $123,159 million. If the firm's fair value of debt is estimated at $4000 million, then the fair value of the firm's equity could be $119,159 million. $119,159 million / 5490 million outstanding shares is approximately $22 per share and a 20% margin of safety is $17/share.
I estimated the firm's WACC today at 12.51% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
| Year | FCF $Millions |
| 2001 | 1345 |
| 2002 | 4426 |
| 2003 | 7859 |
| 2004 | 9276 |
| 2005 | 9005 |
| 2006 | 4841 |
| 2007 | 7625 |
| 2008 | 5729 |
| 2009 | 6655 |
| 2010 | 11485 |
Average Annual Growth FCF: approx. 44%
CAGR FCF: approx. 27%. Consensus Forecast Industry 5-Year Growth: approx. 17% per year. Consensus Forecast Company 5-Year Growth: approx. 12% per year.
Scenario 1
Assuming the company achieves a 5-year growth rate in FCF of 12% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 11485 |
| 1 | 12863 |
| 2 | 14407 |
| 3 | 16136 |
| 4 | 18072 |
| 5 | 20240 |
| Terminal Value | 181212 |
The firm's future cash flows, discounted at a WACC of 12.51%, give a present value for the entire firm (Debt + Equity) of $157,165 million. If the firm's fair value of debt is estimated at $4000 million, then the fair value of the firm's equity could be $153,165 million. $153,165 million / 5490 million outstanding shares is approximately $28 per share and a 20% margin of safety is $22/share.
Scenario 2
According to Intel, 2010 was a banner year:
2010 was a record year for us. Strong market growth in the business and consumer PC market segments as well as the continued build-out of the data center, the leadership of our product portfolio, and improvements to our cost structure all contributed to the most profitable year in our history. Revenue increased 24% in 2010 compared to 2009. Our 2010 gross margin percentage of 65.3% increased by 9.6 percentage points from 2009, primarily driven by lower factory underutilization charges, higher microprocessor average selling prices, lower platform (microprocessor and chipset) unit cost, and higher platform unit sales. We expect continued strength in emerging markets coupled with the build-out of the cloud computing infrastructure to contribute toward a 2011 revenue growth percentage in the mid- to high-teens. This expectation is also inclusive of the recently completed acquisition of the WLS business of Infineon and the expected acquisition of McAfee in the first quarter of 2011.
Intel's 2010 Free Cash Flow was ~ $11.5B; a YOY increase of ~ 73%.
- Assume Intel achieved $9B in FCF for 2010 instead of $11.5B
- Assume the company achieves a 5-year growth rate in FCF of 12% per year and that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:
Discounted Cash Flow Valuation
| Year | FCF $Millions |
| 0 | 9000 |
| 1 | 10080 |
| 2 | 11290 |
| 3 | 12644 |
| 4 | 14162 |
| 5 | 15861 |
| Terminal Value | 142004 |
The firm's future cash flows, discounted at a WACC of 12.51%, give a present value for the entire firm (Debt + Equity) of $123,159 million. If the firm's fair value of debt is estimated at $4000 million, then the fair value of the firm's equity could be $119,159 million. $119,159 million / 5490 million outstanding shares is approximately $22 per share and a 20% margin of safety is $17/share.
