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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 11:31:00 PM
From: Andrew  Read Replies (1) of 253
 
Joan and all:

As you can see, if you don't count the cost of repurchasing shares to cover the employee stock option plan, my discounted FCF valuation method suggests that Intel is getting attractive.

However, I beleive that these costs are an unavoidable expense in today's business environment, and must be counted as such. Furthermore, these expenses show signs of ballooning out of control (Intel reported that they had already spent 2.2 Billion on share repurchases in the first half of 1997, so it could turn out to be much worse than I estimated!). I'm not even certain that Intel will in the future be able to fully cover it's options obligations, which would allow dilution of shares outstanding. (I don't however claim to be an expert on this subject) Therefore, I'm of the opinion that the second set of numbers in my previous post are a more realistic representation of the real economic value of Intel shares (if one wants to play it safe - I feel my assumptions were very much on the conservative side. Maybe I'll post "best case" numbers later).

People who suggest this disagrees with the already "reasonable" P/E on Intel should probably consider how much higher that P/E would look if ALL the costs of paying it's employees were to be included in the income statement.

This is disappointing to me, as I was getting very interested in purchasing shares in this great company. As I said before, I would like to hear from anybody who agrees or disagrees.

Andrew
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