J P Morgan initiated coverage of amd and intel
Valuation
From a valuation perspective we believe that both AMD and Intel represent
reasonable valuations at current levels, though for slightly different
reasons. For AMD, on the basis of both Price/Book and Price/Sales, shares of
the company represent the best absolute valuation of the group. Shares of AMD
have historically traded at a significant discount to both the semi device
group and its chief competitor Intel. Having said this, the historical
valuation gap is narrowing significantly, as AMD has executed well up to this
point of the down cycle and thus been able to gain market share from Intel
over the past year. Nonetheless, shares of the company continue to trade at
2.7x book value, nearly a 45% discount to Intel, and 1.4x C02 revenues, a
discount to Intel of roughly 76%. Given the company's share gains, as
mentioned above, recent product introductions and improved management
execution, we would expect the valuation gap between the two companies to
narrow. We would be buyers of AMD at current levels. From a relative
valuation perspective, shares of Intel, trading at approximately 5.0x book,
are approaching 1996 trough valuation levels of 4.92x and are well below 1998
and 2001 trough levels of 6.6x and 5.63x, respectively. From a C02
Price/Sales basis, shares of the company are trading at roughly 6.1x, while in
the previous troughs of 1996 and 1998, the company showed Price/Book multiples
of 5.7x and 6.4x, respectively. Again, the company is reflecting a relatively
reasonable valuation. |
