No, just seeking any model. I appreciated yours, though I would have chosen much different fudge factors, and not always more bearish. I don't think your 'failure factor' is as high as 1 in 5, for instance.
I ran INTC's numbers through a simple dividend discount model (see stern.nyu.edu, with the following optimistic assumptions:
a) buybacks count as dividends
b) 50% of earnings go to buybacks
c) there is a ten-year period of high growth (20%)
d) this is followed by moderate growth (10%) to infinity
e) initial buybacks next year total $2.50/sh (EPS is $5)
f) you require 25% returns for the 10 years
g) and require 12.5% thereafter
The result is a hypothetical value of $93. Note that this includes very optimistic assumption d), but demanding f).
Please note that based on the received wisdom (see the lecture), earnings growth = (1 - payout ratio) * (ROE); in the case of Intel, this is closer to 15% assuming half of EPS goes to buybacks.
I recognize that DDM models of this sort are overly sensitive to the inputs, not to mention the required return. Drop f) to 20.1%, and the current value jumps to $134. Further drop c) to 15%, though, and the current value collapses back to $91.
IMHO, Intel will be lucky to see ten-year EPS growth of 15% -- but that judgement appears to be precisely where I differ from the thread.
mb |
