John Fowler. Re: So is Intel overvalued, fairly valued?
I think the answer is, "That depends." And mostly it depends on Intel's future growth rate. The weighted average of 28 analysts is about 20%, with the low around 13% and the high at 26%.
Interestingly, Intel's growth rate for the past 10 years has averaged around 30%, and its average PE has only been around 18. In the last five years the average PE has increased, but until 1999 it remained below the growth rate.
If future earnings grow at a 25% rate and the average PE stays around 25 over the next five years, Intel will return about 19%, more than double your money at today's close. If Intel earns $2.91 in 2000 (the current consensus), it's fair value today is around $75 per share.
However, if Intel's growth rate averages 20% going forward, it's not such a good bet. With an average PE of 20, your investment would grow by less than 10% over the next five years at best. With the lower growth rate, Intel's fair value today would be around $60 per share.
Of course, Intel's growth rate could accelerate, with acquisitions and its new Internet focus.
One of the wild cards in figuring Intel's growth rate, it seems to me, is their income from investments. That could play a key role going forward in bumping up the company's growth rate, earning the company a higher PE in the market place and raising your return.
Truth to tell, I don't know the answer or have an educated opinion. However, two things are clear: 1) there is little doubt that Intel is at the very high end of its value range recently, which may explain some of the recent decline, and 2) it has never paid to underestimate Intel's ability to grow.
HL |
