From Reuter's:
Intel Corp. (INTC) shares have eased 3 percent since the chipmaker's lackluster outlook on April 19 for second quarter growth. Given analyst projections for profits growth, though, the shares still look too pricey, an analysis based on a capital asset pricing model shows - even for some growth investors.
Continued below
On average, analysts are expecting a long-term earnings growth rate of 12.5 percent for Intel. Given the volatility level in the shares, our analysis, based on the recent price-to-earnings ratio and volatility, indicates that a new position would require the company to achieve an annualized 13.8 percent per-share earnings growth rate for the next five years to reward the investment.
From a purely mechanical standpoint the shares seem overvalued. But we've never been beholden to pure mechanics. The spread between the two figures is close enough that, in some other cases, we've called it fairly valued. We're more cautious in this case.
When a stock looks overvalued relative to the mean estimate, it's worth asking what the spread is. If all of the analysts on Wall Street were in lockstep at the average, then a slight overvaluation isn't too much to be worried about. One could even argue that clarity of future earnings is worth a premium price. In this case, fifteen analysts give long-term growth projections. The most any of the analysts expects is long-term profits growth of 20 percent, the least is 4.6 percent. With the standard deviation of the projections at 3.9, none can really be called a statistical outlier.
Intel management does offer guidance, at least for the next quarter, so the wide spread indicates significant analyst dissent regarding Intel's prospects, at least for the second half of 2006. If the experts are so widely torn, why should investors take a chance on a stock that is priced to reflect a better-than-average opinion?
