Intel Corporation (NASDAQ: INTC) had a tough year last year. Sales slowed due to many corporations tightening up their spending as a result of uncertain economic conditions. However, when looking at the larger picture, it is very clear that the average consumer is using more and more technology and devices. Also, while Intel’s sales did slow a little last year they are still the stand out leader in the semiconductor industry and they continue to expand into other areas. Their latest branding of the term “Ultrabook” has allowed consumers to quickly see which laptops are the fastest and slimmest on the market.
With these facts in mind, I decided to do a multiples analysis to see if Intel’s stock was trading in line with the industry standards. In choosing Intel’s competition in the semiconductor industry I decided to use a more systematic approach, which included looking at the holdings of some of the larger semiconductor indexes and choosing the largest holdings. Notable competitors included: Texas Instruments (NASDAQ: TXN), Sandisk Corp (NASDAQ: SNDK) & Nvidia(NASDAQ: NVDA). These three companies continue to innovate and create new products, and while Intel is definitely a more mature company, they still have the ability and resources to compete and beat their competitors.
All three of these competitors are trading at substantially higher multiples then Intel. This could be due to them all being smaller companies then Intel and the market assuming that there is a larger growth opportunities for a smaller firm, however, I take this as a sign that the market is undervaluing Intel. See comparable’s table below:
I also completed a rough discounted cash flow model which confirmed the results of the multiples analysis. All signs point to Intel being an excellent value currently. This conclusion is strengthened by the fact that Intel is currently paying a +4% dividend and also given current macroeconomic conditions which seem to be improving.
The CES in Las Vegas began this week and it will be interesting to see what Intel has in the pipeline. The company continues to innovate and I have heard rumor of a device that will compete with Apple TV. Per my analysis, I feel confident placing a buy rating on Intel with a price target of $32.50.
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