Free Cash Flow as Value Criterion Message Board

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Strategies & Market Trends : Free Cash Flow as Value Criterion

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To: jbe who wrote (96)	11/2/1997 11:17:00 PM
From: Andrew	Read Replies (2) of 253

Ok, Joan, I'll get the ball rolling on Intel. I've been checking into how much they've been spending to buy back shares. While there has been a slight downward trend in the number of shares outstanding, I would estimate that the majority of this buyback has been to cancel out the dilution due to stock options. Maybe someone who understands the situation better could correct me. This is only intended to get at an FCF-based valuation of Intel. Any discussion of specific fundamentals is probably much better directed to the Intel thread. Suffice it to say that my position is that one should only undertake this sort of valuation if one has done enough fundamental research to have well-developed opinion on future free cash flow. That is, the method I am using depends heavily on reasonably accurate estimates of future FCF's. I'm not suggesting that I can predict the future, just that I'm trying to.<g> Anyone who wants to get the details on the calculations I am doing can consult the detailed explanations I posted earlier on this thread. At every step I will try to make conservative choices - for instance I will try to lowball the rate at which I expect Intel's FCF to grow. I will demand a rate of return (discount rate) considerably higher than the current long bond yield. Further, I will not consider FCF's from beyond 20 years from now to avoid the optimistic expectation of Intel being around "forever". My next post will tabulate selected financials, and valuation based on the following assumptions: Average annual FCF growth rates of 7%, 10% and 15% for ten years, followed by 10 years of 7% growth. I will not count on there being any FCF after that. I will use a discount rate of 9%. The starting FCF will be based on my estimate for the 1997 fiscal year ending in December (based on Value Line's estimates and Intel's June 10Q). I welcome any comments and constructive criticisms on my method or it's results. That's why I'm doing this!<g> Andrew

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