Valuing Intel: A Strange Tale of Analysts and Announcements

This paper examines the market reaction to a press release issued by Intel on Thursday, September 21, 2000. In response to that release, Intel’s stock price dropped 30 percent, erasing over $120 billion of shareholder wealth. By analyzing the press release in conjunction with analyst reports and by using a discounted cash flow valuation model, it is argued that the information conveyed by the announcement was not sufficient to explain the stock price drop. In an effort to explain this controversial conclusion, the paper documents the puzzling and procyclical role of analysts’ recommendations regarding Intel. Surprisingly, analysts were more strongly recommending purchase of the stock in August at $75 than they were recommending purchase in September at $40. This suggests a positive feedback between stock price movements and analyst recommendations that may increase the volatility of prices