Intel (NASDAQ:INTC) has had a rough year. So far in 2021, INTC stock is up just 7.5% from $49.82 at the end of December 2020 to $53.57 as of the close on Sept. 8. In fact, since April 9, when it hit $68.26, the stock tumbled down to $52.01 on Aug. 20. Since then it has slowly drifted up to over $53.

However, now I think there is good reason to believe that INTC stock could move substantially higher. This is based on the company’s recent performance and the outlook that it gave for the rest of the year.

Free Cash Flow Estimates Intel

The company reported respectable quarterly numbers on July 22 for its fiscal second quarter. The key item, from my standpoint, is its huge free cash flow (FCF) production. As a result, I now estimate that INTC stock could be worth at least $67.50 or 26.5% over Wednesday’s close.

The reason is actually quite simple. The company itself projects that it will produce $11 billion in FCF during 2021. This can be seen on page 17 of its earnings release where it projects revenue and FCF for the full year. Since Intel also projects $73.5 billion in non-GAAP revenue, the FCF margin will be 15% of its forecast revenue (i.e., $11 billion/$$73.5 billion).

However, after looking at this more closely I realized that the company is spending a lot more on capex this year than normal. For example, in the trailing 12 months (TTM) to June 30, the company spent $16.03 billion on capex, not $19 billion as in its projections on page 17. So, on a normalized basis, Intel’s FCF margin is closer to 19% (i.e., $14 billion/$73.5 billion).

This is important, since I want to use a comparison with Advanced Micro Devices (NASDAQ:AMD) to figure out Intel’s valuation.

Comparison With AMD

AMD reported excellent Q2 numbers as well. Its free cash flow worked out to $888 million on $3.85 billion in sales for the quarter. That works out to an FCF margin of $23%, or 4 percentage points above our projection for Intel this year on a normalized basis. This means it is 21% more profitable than Intel.

Since analysts expect the company to make $15.63 billion in revenue this year according to analyst estimate surveyed by Seeking Alpha, its FCF could reach $3.6 billion (i.e., 23% x $15.63 billion). This is important since it represents 2.8% of its $128.78 billion in market value. In other words, its FCF yield is 2.8%.

Therefore we can use this to value INTC stock.

Now, at present with its $11 billion in FCF, Intel has a 5% FCF yield. This is seen by dividing its $11 billion FCF estimate for this year by its market value today of $217.333 billion.

However, since Intel’s FCF margin is only 21% below AMD’s, maybe we should value INTC stock with an FCF yield that is just 21% worse than AMD’s 2.8% FCF yield. In other words, a 3.39% FCF is 21% worse than the 2.8% yield, but to be safe, simplistic, and conservative, let’s use 4%. (Remember if you divide a number with a higher divisor, the quotient or result will be a lower number).

So, in this case, dividing the Intel FCF estimate of $11 billion by 4% results in a target market value of $275 billion. That represents a potential gain of 26.5% over its present $217.3 billion market cap. Note we did not use the normalized $14 billion FCF estimate

In other words, our target price for INTC stock is $67.50, or 26.5% higher than its price today of $53.57. It would be much higher with the $14 billion FCF normalized estimate.

What To Do With INTC Stock

If we believe Intel, the company will produce $11 billion in FCF. Using a very conservative FCF yield measure of 4%, the stock is worth $67.50. This method involves a more conservative FCF yield than what it should be vs. AMD stock.

As a result, value investors might want to begin taking a toehold stake in INTC stock.

And one more thing. It doesn’t hurt to wait for the stock to rise. The company pays a dividend with an annual dividend yield of 2.6%.

On the date of publication, Mark R. Hake did not hold a position, directly or indirectly, in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.