hi i'm jimmy in this video we're looking at intel stock ticker symbol intc our goal is to look at
the basics of intel's business and then see if we can come up with a fair value for intel stock
using discounted free cash flow we're also going to look at some recent news and some developments
in this stock that have ultimately moved the stock price okay now as many of you may already
know i personally own shares of intel so i'll touch on why i bought the shares that i bought
where i bought them and when i might consider selling them okay with that being said let's dive
quickly into intel's business so intel's business is broken into a handful of different segments
based on the usage of their products so their largest segment is what they call pc
centric and this is where they account for revenue for the chips that they manufacture
so we might have heard about their troubles with a 10 nanometer chip or a 7 nanometer chip troubles
with manufacturing things along those lines well that's where this revenue is accounted for
so clearly this is a large part of their business so i suppose it makes sense that when this part of
their business is affected from at least a news perspective or a manufacturing perspective well
that would ultimately hurt their stock price but we're going to come back to this in a second then
their next largest segment is their data center group and that generated about a third of their
revenue in 2019. now i'm using 2019 because 2020 is not yet completed for intel they announced the
fourth quarter i believe at the end of january so for the past 12 months the numbers are about the
same percentage so either way for that group it's about a third of their overall revenue
and what that group does is they manufacture products for the cloud enterprise and some
communication infrastructure hardware so i think that this is there's a decent amount of upside
for this business okay then intel also produces hardware for machine learning for uh data analysis
mapping autonomous vehicles and the list goes on and on so now let's look at some of the news
that are dr that has driven intel stock over the past six months as we can see it's been a fairly
volatile six months so the first big drop happened in july of 2020 and that happened because intel
had a big announcement that they were delaying their next generation chips and the stock dropped
more than 20 over just a few days until the stock bottomed out down there then when we fast
forward a few months well once again intel had a pretty big drop of about 10 or just short of 10
when their third quarter earnings got released and that earnings report really amplified the issues
that was already out there in the news the trouble that they were having with manufacturing and
ultimately rolling out the future generations of their products that's on top of the fact that amd
is actively competing with a lot of their products so investors got worried and sold things off then
the most recent sell-off happened right here and that's when microsoft announced that they're going
to be processing some of some of their own chips in-house specifically around their cloud services
where they're producing those chips so obviously that hurts intel's revenue but i've seen some
estimates and it's estimated that microsoft's revenue to intel is less than one percent on
an annual basis now i haven't been able to find the exact numbers to be able to confirm those
estimates but either way the point being that an eight or nine percent drop in the stock price
that's what happened when the news first broke well that seems a little bit disproportionate
to the reality although i do understand that that news is on top of the previous news and
it's really just freaking out a lot of investors so i understand the fact that the stock would pull
back that much now the good news for us investors is that the stock appears to continue to rebound
now if you're curious actually bought my shares of intel at an average price of 45.65
so i've only held my shares for the past few months and right now i've had a decent amount of
upside so far i'm up about 12 or 13 so do we sell our shares of intel or maybe do we even buy more
now before we go ahead and answer that question i think it makes a lot of sense for us to
get a sense of what intel stock could be worth compared to today's price and see what we want to
do from there now gsl we're on the same page we're going to use discounted free cash flow
this kind of free cash flow is when we take projections for analyst estimates
and we calculate what that should be worth today now i've actually done two other videos on intel
in the past where i use discounted free cash flow and i just want to point out how the numbers
how projections work because i you when i get my estimates for free cash flow i
use analyst estimates so just to illustrate i actually did a video back in november of 2018
and then i did another one in july of 2020 and we can see that those two numbers are about the same
then today's video well that video is our 2021 video and we can see that 20 s this is estimates
for the year for the fiscal year 2020 well we could see that estimates had a minor increase
from the previous two videos that i had done now 2020 is almost done so far there's three
quarters have already been completed for 2020 but up to this point through the first three quarters
while intel has already produced about 15 to 15 billion dollars in free cash flow so far so it
looks like these estimates are not too far off and that's really impressive especially when we
consider that one of them came back from november of 2018 so whoever that those analysts are did a
pretty good job of forecasting out now when we go to estimates for 2021 well we can see that
estimates in 2021 dropped six months ago although they are up slightly now from where they were
six months ago and then for 2022 estimates well i actually didn't have those when i did the november
of 2018 video that's why we don't see any blue bar but we can see that estimates for 2022
are down in from the a few months ago uh that was about six months ago when i did the last video so
given the trouble that intel has had it makes sense that there would be a decrease in future
free cash flow okay now shifting over to our discounted free cash flow we take those very
same estimates that the up-to-date estimates and we take those estimates we discount them by
our required rate of turn of seven and a half percent then we grow it out by our perpetual
growth rate of two and a half percent and that gives us a fair value for the company of about
a hundred one dollars per share now we should also adjust this calculation of fair value
for debt because technically that 101 dollars is not really per share it's for the entire company
well we adjust this for net debt so basically you take debt subtract cash and then divide that by
the shares outstanding and you end up with a fair value for intel stock of 96 dollars per
share now i know i sort of rushed through this whole calculation and that's because i actually
did a whole video on how to do that so if you're curious how to do this type of calculation i
built an excel template that's what this is i'll leave a link in the description below
to that video the dcf guide it's it's a lo one of my it actually is my longest video but i try
to go through where to get each of these numbers how you can calculate them if you can't find them
so i'll leave that link in the description below but either way let's say we believe that the
fair value should be somewhere near 96 dollars per share assuming intel can achieve somewhere
near these numbers over the next few years well when we switch over to their stock chart well if
that's the case the upside for this stock could be potentially huge now like i mentioned before
when intel dropped a few months ago well i jumped in and personally bought shares of intel and i
did that because i'm a long-term investor and i think that intel has the potential they have the
opportunity to collect some of the uh to correct collect correct some of their obvious problems
there's no denying they have some i'm hoping what will be short-term problems but they generate so
much free cash flow so much revenue so much cash in general that they genuinely have an opportunity
to turn the business around and if they do that well i think that the stock could get much closer
to our calculation of fair value now personally i'm unlikely to buy more shares of intel at this
point and that's not because the current price is yes it is obviously higher than what i bought it
but it's really revolves around the risks of intel i recognize that there are a lot of risks
i recognize that intel has to change fundamentally what they're doing and i'm banking on because of
their cash because of their position in the market they have the the time to correct it
do they have the management to correct it i'm not really sure i've heard i've seen a lot of pushback
about the current management team and i believe that it's the obligation of the board of directors
to ultimately replace the ceo and replace upper management if they don't correct the problems that
they have if they do that or perhaps i'm wrong and the ceo figures out how to pull it off if they can
turn this thing around i think that the upside for intel is huge but of course there's risk that
they can't which is why for me i don't want to buy any more shares at this point instead i'm happy to
just sit here hold my shares and wait to see what the business does now the good news is generally
we'll be able to see whether or not management is achieving their goals based on the numbers
that they're producing not the number of the stock price that stock price is too volatile look at how
crazy this thing is if we're using that to determine our success i think that's wrong
i think that over the coming years are they gradually increasing their free cash flow
are they creating new products are they increasing their revenue if they are doing those things the
stock will eventually follow suit if they don't well then i would have to admit that i'm wrong
i'd bail out of the stock and that would be that lesson learned but if they can once again
the upside could be quite big so for me the risk reward makes sense now if you're curious how to
gauge when selling a stock actually makes sense well i did a video called when to sell a stock
so perhaps that could be a good next video for you to watch i got a link right here i've got a
link in the description below and thank you so much for sticking with me all the way to
the end of the video i really appreciate it thanks and i'll see in the next video