Stock Analysis on Net

Analog Devices Inc. (NASDAQ:ADI)

Present Value of Free Cash Flow to Equity (FCFE) 

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Intrinsic Stock Value (Valuation Summary)

Analog Devices Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 14.95%
01 FCFE0 4,037,707
1 FCFE1 4,193,744 = 4,037,707 × (1 + 3.86%) 3,648,463
2 FCFE2 4,423,733 = 4,193,744 × (1 + 5.48%) 3,348,151
3 FCFE3 4,737,983 = 4,423,733 × (1 + 7.10%) 3,119,734
4 FCFE4 5,151,292 = 4,737,983 × (1 + 8.72%) 2,950,859
5 FCFE5 5,684,088 = 5,151,292 × (1 + 10.34%) 2,832,703
5 Terminal value (TV5) 136,272,123 = 5,684,088 × (1 + 10.34%) ÷ (14.95%10.34%) 67,912,125
Intrinsic value of Analog Devices Inc. common stock 83,812,035
 
Intrinsic value of Analog Devices Inc. common stock (per share) $169.01
Current share price $195.20

Based on: 10-K (reporting date: 2023-10-28).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.53%
Expected rate of return on market portfolio2 E(RM) 13.63%
Systematic risk of Analog Devices Inc. common stock βADI 1.14
 
Required rate of return on Analog Devices Inc. common stock3 rADI 14.95%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rADI = RF + βADI [E(RM) – RF]
= 4.53% + 1.14 [13.63%4.53%]
= 14.95%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Analog Devices Inc., PRAT model

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Average Oct 28, 2023 Oct 29, 2022 Oct 30, 2021 Oct 31, 2020 Nov 2, 2019 Nov 3, 2018
Selected Financial Data (US$ in thousands)
Dividends declared and paid 1,679,106 1,544,552 1,109,344 886,155 777,481 703,307
Net income 3,314,579 2,748,561 1,390,422 1,220,761 1,363,011 1,495,432
Revenue 12,305,539 12,013,953 7,318,286 5,603,056 5,991,065 6,200,942
Total assets 48,794,478 50,302,350 52,322,071 21,468,603 21,392,641 20,449,779
Shareholders’ equity 35,565,122 36,465,323 37,992,542 11,997,945 11,709,188 10,988,540
Financial Ratios
Retention rate1 0.49 0.44 0.20 0.27 0.43 0.53
Profit margin2 26.94% 22.88% 19.00% 21.79% 22.75% 24.12%
Asset turnover3 0.25 0.24 0.14 0.26 0.28 0.30
Financial leverage4 1.37 1.38 1.38 1.79 1.83 1.86
Averages
Retention rate 0.39
Profit margin 22.91%
Asset turnover 0.27
Financial leverage 1.60
 
FCFE growth rate (g)5 3.86%

Based on: 10-K (reporting date: 2023-10-28), 10-K (reporting date: 2022-10-29), 10-K (reporting date: 2021-10-30), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-11-02), 10-K (reporting date: 2018-11-03).

2023 Calculations

1 Retention rate = (Net income – Dividends declared and paid) ÷ Net income
= (3,314,5791,679,106) ÷ 3,314,579
= 0.49

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 3,314,579 ÷ 12,305,539
= 26.94%

3 Asset turnover = Revenue ÷ Total assets
= 12,305,539 ÷ 48,794,478
= 0.25

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 48,794,478 ÷ 35,565,122
= 1.37

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.39 × 22.91% × 0.27 × 1.60
= 3.86%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (96,801,271 × 14.95%4,037,707) ÷ (96,801,271 + 4,037,707)
= 10.34%

where:
Equity market value0 = current market value of Analog Devices Inc. common stock (US$ in thousands)
FCFE0 = the last year Analog Devices Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Analog Devices Inc. common stock


FCFE growth rate (g) forecast

Analog Devices Inc., H-model

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Year Value gt
1 g1 3.86%
2 g2 5.48%
3 g3 7.10%
4 g4 8.72%
5 and thereafter g5 10.34%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 3.86% + (10.34%3.86%) × (2 – 1) ÷ (5 – 1)
= 5.48%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 3.86% + (10.34%3.86%) × (3 – 1) ÷ (5 – 1)
= 7.10%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 3.86% + (10.34%3.86%) × (4 – 1) ÷ (5 – 1)
= 8.72%