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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (171681)	10/21/2002 2:44:08 PM
From: GVTucker	Read Replies (2) \| Respond to of 186894

If you want a "quick and dirty" justification for the current price of Intel using rational assumptions, it's pretty easy. Start with the 1996 earnings number of $5 billion, a pre-bubble number. Then, use a discount rate of 10% and a long term earnings growth rate of 5%. Both of these over the long term certainly seem possible. Take those $5 billion in earnings and discounted, growing stream of earnings in perpetuity (so that we don't get into any discussion of a terminal value) and you've got a current value of Intel of $100 billion, pretty close to the current number. (The formula for a constant growth perpetuity is x/(r-g) where x=current year earnings, r=the applicable discount rate, and g=the growth rate of earnings. The $5 billion number isn't the current number, I know, but it seems like a pretty good non-bubble non-trough starting point.)

To: Jorj X Mckie who wrote (171681)	10/21/2002 3:31:50 PM
From: chomolungma	Read Replies (1) \| Respond to of 186894

Do you consider the earnings level in the late 90s to be normal? I consider them a lot closer to normal that the current earnings. Let's look at the last 10 years of Intel profit margins. (Net/Sales) 1992 18.3% 1993 26.1% 1994 18.3% 1995 22% 1996 24.7% 1997 27.7% 1998 23.1% 1999 24.9% 2000 31.2% 2001 4.9% Looking at those numbers, I think that the only real "bubble" earnings was that 2000 number. So let's take a middle of the road number of, say, 23% (That throws out the high and the low and averages the rest, sort of like they do in diving). Applied to a non-recession sales level of about $30 billion, we have a net profit of $6.9 billion. Give that a 25 multiple and you get a market value of $172 billion.