John, Re: [From Ralph Acampora]: take a look at Intel (INTC-$17.31-Buy). In my opinion, this stock is going the way of Sun Microsystems (SUNW-$2.42-Buy) to the $2.00 to $4.00 range.
Let's investigate that, John. How would INTC be valued as a $4.00 stock (the high end of this Managing Director's projection)?
- The first valuation is based on current cash. INTC's Cash/Shares is $1.59. $4.00 is 2.5x this number. If you look at other companies on the Dow, DIS has $1.08 $/share, and a current share price of $14.06. For Disney to have the same ratio as a $4.00 INTC, its share price would be $2.70. Disney's EPS isn't that much better than INTC's right now. Another Dow example, AT&T, also has a similar EPS to Intel (though they had a very large write off recently that cost them billions. Its $/share is currently $1.56. For AT&T to have the same ratio as a $4.00 INTC, it would not be priced at $10.70 as it is now, but rather at $3.90. If you look at things the other way around, in order to be valued like a $14.06 DIS, INTC would be priced at $20.70. In order to be valued like a $10.70 AT&T, INTC would be priced at $10.90. It's a large range, but my guess is that the stability of INTC is valued to investors somewhere between DIS and AT&T. If you look to SUNW, as Ralph Acampora has, they have a $/share of $0.89. In order to be valued like a $2.41 SUNW, INTC would have a share price of $4.30. But the question is whether INTC deserves to be valued like SUNW, given their current competitiveness, and trend of stealing market share?
- The second valuation is based on book value. INTC's book/share is $5.34, and $4.00 is 0.75 that number. DIS has $11.55 book/share. A DIS valued like a $4.00 INTC would be priced at $8.66. AT&T has a book/share of $11.12. If AT&T were priced at a $4.00 INTC, they would be $8.34. From the other perspective, an INTC valued like a $14.06 DIS would be priced at $6.50, and if valued like a $10.70 AT&T would be $5.14. That's not as rosy of a picture any more, but still one data point. INTC is valued higher than other Dow stocks with respect to book value. Yet, even with respect to book, a $4.00 INTC seems much too harsh (let alone a $2.00 INTC). For SUNW, they have a book/share of $3.03. If INTC were valued like SUNW, they would have a share price of $4.25. Again, this is close to the author's projection, assuming that INTC should be valued like SUNW.
- The third valuation is based on sales. INTC's sales/share is $3.89, and a $4.00 INTC is close to this number. DIS has a $11.92 sales/share, and for AT&T, it's $13.99. If INTC were priced like a DIS or AT&T, they would be between $2.96 and $4.59, which is close to the range that Ralph Acampora suggests. Furthermore, SUNW has a sales/share ratio of $3.83. INTC priced at SUNW valuations would only cost $2.45. Another interesting datapoint, of course.
- Finally, here is the result of basing valuation on earnings. INTC's EPS is currently $0.29, and a $4.00 INTC would have a P/E of 13.8. Disney's P/E is 26, and AT&T doesn't have one due to their recent writeoff. An INTC valued like Disney would be priced at $7.54, and of course, there can be no comparison with AT&T. A $4.00 INTC is still out of the question. There can be no comparison with SUNW, either, since they lost money over the past 12 months.
Given 4 different valuations, INTC seems to come in at different values. Pricing INTC at any of the above prices depends on how investors see INTC relative to the above mentioned companies. Personally, I see AT&T in a lot of trouble, due to the horrid telecom market. Semiconductors look rosy in comparison. SUNW is losing market share, losing money, and losing mindshare in their business. INTC is gaining in all these respects. DIS is a stable company, but growth prospects aren't as good as a semiconductor company. Based on INTC's future plans, I would value them much higher than any of these companies, but apparently, Ralph Acampora does not agree. If he thinks INTC should be valued where SUNW is, he should offer a better reason why.
Over the next year, things are expected to recover enough such that Intel can nearly double earnings. If things recover further, I can see earnings getting back above $1.00 EPS per quarter. That might be a couple years down the road, but I don't see the same happening for DIS, AT&T, or SUNW. That's just my opinion.
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