Stock Analysis on Net
Stock Analysis on Net

Analog Devices Inc. (NASDAQ:ADI)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Analog Devices Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 14.09%
01 FCFF0 3,745,804
1 FCFF1 3,847,216 = 3,745,804 × (1 + 2.71%) 3,371,974
2 FCFF2 4,021,281 = 3,847,216 × (1 + 4.52%) 3,089,156
3 FCFF3 4,276,291 = 4,021,281 × (1 + 6.34%) 2,879,257
4 FCFF4 4,625,177 = 4,276,291 × (1 + 8.16%) 2,729,476
5 FCFF5 5,086,572 = 4,625,177 × (1 + 9.98%) 2,630,957
5 Terminal value (TV5) 135,837,454 = 5,086,572 × (1 + 9.98%) ÷ (14.09% – 9.98%) 70,259,990
Intrinsic value of Analog Devices Inc. capital 84,960,809
Less: Debt (fair value) 5,844,284
Intrinsic value of Analog Devices Inc. common stock 79,116,525
 
Intrinsic value of Analog Devices Inc. common stock (per share) $159.54
Current share price $189.93

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

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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.

Weighted Average Cost of Capital (WACC)

Analog Devices Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 94,187,835 0.94 14.80%
Debt (fair value) 5,844,284 0.06 2.79% = 3.03% × (1 – 7.92%)

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

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 495,908,150 × $189.93
= $94,187,834,929.50

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (8.13% + 11.30% + 21.00% + 6.93% + 8.76% + 4.46%) ÷ 6
= 7.92%

WACC = 14.09%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Analog Devices Inc., PRAT model

Microsoft Excel
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)
Interest expense 264,641 200,408 184,825 193,305 229,075 253,589
Net income 3,314,579 2,748,561 1,390,422 1,220,761 1,363,011 1,495,432
 
Effective income tax rate (EITR)1 8.13% 11.30% 21.00% 6.93% 8.76% 4.46%
 
Interest expense, after tax2 243,126 177,762 146,012 179,909 209,008 242,279
Add: Dividends declared and paid 1,679,106 1,544,552 1,109,344 886,155 777,481 703,307
Interest expense (after tax) and dividends 1,922,232 1,722,314 1,255,356 1,066,064 986,489 945,586
 
EBIT(1 – EITR)3 3,557,705 2,926,323 1,536,434 1,400,670 1,572,019 1,737,711
 
Debt, current 499,052 — 516,663 — 299,667 67,000
Commercial paper notes 547,224 — — — — —
Long-term debt, excluding current 5,902,457 6,548,625 6,253,212 5,145,102 5,192,252 6,265,674
Shareholders’ equity 35,565,122 36,465,323 37,992,542 11,997,945 11,709,188 10,988,540
Total capital 42,513,855 43,013,948 44,762,417 17,143,047 17,201,107 17,321,214
Financial Ratios
Retention rate (RR)4 0.46 0.41 0.18 0.24 0.37 0.46
Return on invested capital (ROIC)5 8.37% 6.80% 3.43% 8.17% 9.14% 10.03%
Averages
RR 0.35
ROIC 7.66%
 
FCFF growth rate (g)6 2.71%

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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 264,641 × (1 – 8.13%)
= 243,126

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 3,314,579 + 243,126
= 3,557,705

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,557,705 – 1,922,232] ÷ 3,557,705
= 0.46

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,557,705 ÷ 42,513,855
= 8.37%

6 g = RR × ROIC
= 0.35 × 7.66%
= 2.71%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (100,032,119 × 14.09% – 3,745,804) ÷ (100,032,119 + 3,745,804)
= 9.98%

where:

Total capital, fair value0 = current fair value of Analog Devices Inc. debt and equity (US$ in thousands)
FCFF0 = the last year Analog Devices Inc. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Analog Devices Inc. capital

FCFF growth rate (g) forecast

Analog Devices Inc., H-model

Microsoft Excel
Year Value gt
1 g1 2.71%
2 g2 4.52%
3 g3 6.34%
4 g4 8.16%
5 and thereafter g5 9.98%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 2.71% + (9.98% – 2.71%) × (2 – 1) ÷ (5 – 1)
= 4.52%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 2.71% + (9.98% – 2.71%) × (3 – 1) ÷ (5 – 1)
= 6.34%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 2.71% + (9.98% – 2.71%) × (4 – 1) ÷ (5 – 1)
= 8.16%