Stock Analysis on Net
Stock Analysis on Net
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Broadcom Inc. (NASDAQ:AVGO)

Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

Intrinsic Stock Value (Valuation Summary)

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

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 11.15%
01 FCFE0 19,313
1 FCFE1 19,300 = 19,313 × (1 + -0.07%) 17,363
2 FCFE2 19,346 = 19,300 × (1 + 0.24%) 15,658
3 FCFE3 19,451 = 19,346 × (1 + 0.55%) 14,164
4 FCFE4 19,617 = 19,451 × (1 + 0.85%) 12,851
5 FCFE5 19,844 = 19,617 × (1 + 1.16%) 11,696
5 Terminal value (TV5) 200,870 = 19,844 × (1 + 1.16%) ÷ (11.15%1.16%) 118,386
Intrinsic value of Broadcom Inc.’s common stock 190,118
 
Intrinsic value of Broadcom Inc.’s common stock (per share) $465.63
Current share price $478.79

Based on: 10-K (filing date: 2020-12-18).

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 2.15%
Expected rate of return on market portfolio2 E(RM) 11.70%
Systematic risk of Broadcom Inc.’s common stock βAVGO 0.94
 
Required rate of return on Broadcom Inc.’s common stock3 rAVGO 11.15%

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 rAVGO = RF + βAVGO [E(RM) – RF]
= 2.15% + 0.94 [11.70%2.15%]
= 11.15%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Broadcom Inc., PRAT model

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Average Nov 1, 2020 Nov 3, 2019 Nov 4, 2018 Oct 29, 2017 Oct 30, 2016 Nov 1, 2015
Selected Financial Data (US$ in millions)
Dividends to common stockholders 5,235  4,235  2,921  1,653  716  408 
Dividends to preferred stockholders 297  29  —  —  —  — 
Net income (loss) attributable to Broadcom Inc. stockholders 2,960  2,724  12,259  1,692  (1,739) 1,364 
Net revenue 23,888  22,597  20,848  17,636  13,240  6,824 
Total assets 75,933  67,493  50,124  54,418  49,966  10,592 
Total Broadcom Inc. stockholders’ equity 23,874  24,941  26,657  20,285  18,892  4,714 
Financial Ratios
Retention rate1 -0.97 -0.57 0.76 0.02 0.70
Profit margin2 11.15% 11.93% 58.80% 9.59% -13.13% 19.99%
Asset turnover3 0.31 0.33 0.42 0.32 0.26 0.64
Financial leverage4 3.18 2.71 1.88 2.68 2.64 2.25
Averages
Retention rate -0.01
Profit margin 7.90%
Asset turnover 0.33
Financial leverage 2.56
 
FCFE growth rate (g)5 -0.07%

Based on: 10-K (filing date: 2020-12-18), 10-K (filing date: 2019-12-20), 10-K (filing date: 2018-12-21), 10-K (filing date: 2017-12-21), 10-K (filing date: 2016-12-23), 10-K (filing date: 2015-12-17).

2020 Calculations

1 Retention rate = (Net income (loss) attributable to Broadcom Inc. stockholders – Dividends to common stockholders – Dividends to preferred stockholders) ÷ (Net income (loss) attributable to Broadcom Inc. stockholders – Dividends to preferred stockholders)
= (2,9605,235297) ÷ (2,960297)
= -0.97

2 Profit margin = 100 × (Net income (loss) attributable to Broadcom Inc. stockholders – Dividends to preferred stockholders) ÷ Net revenue
= 100 × (2,960297) ÷ 23,888
= 11.15%

3 Asset turnover = Net revenue ÷ Total assets
= 23,888 ÷ 75,933
= 0.31

4 Financial leverage = Total assets ÷ Total Broadcom Inc. stockholders’ equity
= 75,933 ÷ 23,874
= 3.18

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.01 × 7.90% × 0.33 × 2.56
= -0.07%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (195,491 × 11.15%19,313) ÷ (195,491 + 19,313)
= 1.16%

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


FCFE growth rate (g) forecast

Broadcom Inc., H-model

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Year Value gt
1 g1 -0.07%
2 g2 0.24%
3 g3 0.55%
4 g4 0.85%
5 and thereafter g5 1.16%

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)
= -0.07% + (1.16%-0.07%) × (2 – 1) ÷ (5 – 1)
= 0.24%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -0.07% + (1.16%-0.07%) × (3 – 1) ÷ (5 – 1)
= 0.55%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -0.07% + (1.16%-0.07%) × (4 – 1) ÷ (5 – 1)
= 0.85%