Intel Corp. (NASDAQ:INTC) has had a rough ride this past year. INTC stock is down 9.45% in the past year, as of June 10. However, now it’s starting to look like something of a bargain.
A new CEO, Patrick P. Gelsinger, started at the company in February, and his job is to turn things around. Analysts now seem to think that is possible. They are raising their out-year estimates. My new valuation for INTC stock is now $69.84, or 22.3% above today’s price.
Here is how I see that valuation works out.
What Intel Is Worth
A recent bullish Seeking Alpha article on Intel says analysts forecast Intel’s earnings per share (EPS) will hit $5 in 2023. That will be quite a turnaround if it happens.
For example, last year, EPS was $4.94 on a GAAP basis and $5.30 on an adjusted non-GAAP basis. But this year, analysts expect EPS will fall to $4.09, a decline of 17.2% on a GAAP basis.
I cannot verify the statement that analysts now expect $5 in EPS for 2023. By that, I mean I cannot verify this is the average of analysts for 2023. Right now, the best estimate is $4.79 EPS for 2023, based on the Marketwatch.com analyst estimate page.
This means that INTC stock today, at $57.15, is trading at just 11.9 times 2023 earnings estimates. That is very cheap. For example, there are two ways we can see that this is cheap.
First, Morningstar.com reports that the average price-to-earnings (P/E) ratio is 14.58 times earnings on average for the past five years. This implies that INTC stock should be worth around $69.84 (i.e., 14.58 x $4.79). However, keep in mind that this is for earnings two years in the future.
To be intellectually honest, we need to discount those earnings back to the present due to the time value of money. Let’s say that we use a 5% discount rate for a two-year period. That results in a discount factor of 90.7%. So the $4.79 EPS number falls to $4.35 per share (90.7% x $4.79). This is an effective way that investors are compensated for having their money tied up for two years.
So the second method of valuing INTC is to discount its earnings and multiplying it at 14.58 times the lower EPS figure. That results in a price target of $63.42. This is just 11.26% above its price today of $57.15.
What to Do With INTC Stock
This time, I think it is more appropriate to stick with the first valuation method. This is simply because it is not as if Intel now is a super growth company. The company’s earnings by 2023 will simply be rebounding to former heights. In this situation, I don’t think it is necessary to discount those earnings.
Moreover, other analysts tend to agree with me. For example, TipRanks.com reports that the average price target of 31 Wall Street analysts who’ve written about INTC stock is $65.54. This is 14.06% above today’s price and is close to my price target of $69.84 as shown above.
In addition, Yahoo! Finance says that 35 analysts have an average price target of $64.87 and Marketwatch indicates that analysts have a $65.42 average target. In other words, analysts have very close price targets, but they all assume that Intel will rebound from here.
Based on this and the changes that analysts assume the new CEO will make to turn the company around, it appears INTC stock is a good bet. My best guess is that the stock will reach $69.84 sometime in the next year or so, 22.3% over today’s price.
On the date of publication, Mark R. Hake did not hold a position in any security in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.