Amy J. Re: "do you have any comments on the following post and its CF analysis?" Rather than a 3 year period, I think it wiser to look at a 10 year period.
Warren Buffett defines an outstanding business as one that adds more than a $1 in market value to every $1 of retained earnings over a long period of time. This measures management's ability to allocate capital effectively. From 1990 to 1999 (today's price), Intel's market value grew by $248 billion, while the sum of the retained earnings for the same period is about $36 billion. Thus Intel management produced almost $7.00 in market value for every $1.00 of retained earnings. Those are world class results, IMHO.
To judge the "growth" in a company's earnings, I use "owner earnings" rather that free cash flow as a measure of earnings growth. This is net income, plus depreciation, minus capital expenditures. These are "owner earnings" because this number multiplied by your shares represents your "share" of the earnings of the company. By retaining the stock and not selling it you are delegating management to redeploy the retained earnings to benefit the company and you for the long-term.
In the past few years Intel's depreciation has increased significantly as Intel has written off earlier heavy capital expenditures, while capital expenditures have actually declined. The result is a large increase in "owner earnings", when compared to conventional EPS. Here are the two since 1995.
EPS: .99, 1.45, 1.94, 1.73, 2.28(E)
OEPS: .30, 1.15, 1.28, 1.52, 2.35(E)
Looking at the second row, it's hard to argue that Intel is not a very strong growth stock, even over the last three years. Not surprisingly, the market has recognized it. For every $1.00 invested in Intel in 1990, investors now have about $29.00.
Hope you find this helpful.
HL |
