Michael,
It seems like you are seeking a precise mathmetical model to determine Intel's stock price. Let me attempt to create one. Please feel free (anyone on the thread) to modify (even completely change) the model and plug in different numbers.
Several of these factors have imperfect answers and each of us may plug in different values.
Here's my model :
Assumptions:
- PE_factor : Earnings (in dollars) grow at 25 percent/year.
(Declining ASPs due to sub 1K PCs is balanced by Intel's ability
to lower costs and limit ASP drop through higher ASP products like
IA-64, Zeon etc. PC shipment growth continues).
Assumption is Growth = PE = 25 = PF_factor.
- Stock_buyback_factor : Stock buyback decreases E by $8B/$200B
(Annual earnings/Market Cap) Assuming half of the earnings is
used to buy back outstanding shares, the stock growth factor
= $4B/$200B = 0.02. So Stock_buyback_factor = 1.02.
So, Stock price = Estimated_1999_Avg_EPS * PE_factor * Stock_buyback_factor
= 4.8 * 1.02 * 25 = $122.4
Now, here are the wildcards :
- Growth_factor : Some say, the last few years were the worst for
semiconductor industry and that that is bound to change soon. Some
also say that there will be 1.4 Billion connected PCs in the world in the next 8-10 years (I assume that Intel will provide most of them - without significant decline in ASPs.) Let's assume a one-time Growth_factor of 40% (i.e. 1.40) in an increase of Intel annual profits (i.e. Y2K, int'l recovery, increased ASPs, etc.)
- Management_factor : Intel Management vs the competitor's management to operate a company and to provide increasing stockholders value. I would look at the past record and give this a factor of 1.2.
- Other_business_factor : Eventual growth in non-PC areas (network cards, VC investment etc). I'll set this factor to 1.1
Here are the downward forces :
- failure_factor : AMD is a smashing success and the whole world economy crashes and everybody gets those free-bee PCs and IA-64 is a disaster.
failure_factor = 0.8.
;*) So, here's the final number for Intel stock price :
4.8 * 1.02 * 25 * 1.4 * 1.2 * 1.1 * 0.8 = $180
Now, isn't this close to the 12-month average target by the analysts ?
Amy J |
