Stock Analysis on Net
Stock Analysis on Net

Broadcom Inc. (NASDAQ:AVGO)

Dividend Discount Model (DDM)

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. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

Broadcom Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 14.06%
0 DPS01 18.40
1 DPS1 18.58 = 18.40 × (1 + 0.97%) 16.29
2 DPS2 19.29 = 18.58 × (1 + 3.81%) 14.82
3 DPS3 20.57 = 19.29 × (1 + 6.66%) 13.86
4 DPS4 22.53 = 20.57 × (1 + 9.50%) 13.31
5 DPS5 25.31 = 22.53 × (1 + 12.35%) 13.11
5 Terminal value (TV5) 1,656.92 = 25.31 × (1 + 12.35%) ÷ (14.06% – 12.35%) 858.24
Intrinsic value of Broadcom Inc. common stock (per share) $929.64
Current share price $1,204.71

Based on: 10-K (reporting date: 2023-10-29).

1 DPS0 = Sum of the last year dividends per share of Broadcom Inc. common stock. See details »

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)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.80%
Expected rate of return on market portfolio2 E(RM) 13.50%
Systematic risk of Broadcom Inc. common stock βAVGO 1.06
 
Required rate of return on Broadcom Inc. common stock3 rAVGO 14.06%

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]
= 4.80% + 1.06 [13.50% – 4.80%]
= 14.06%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Broadcom Inc., PRAT model

Microsoft Excel
Average Oct 29, 2023 Oct 30, 2022 Oct 31, 2021 Nov 1, 2020 Nov 3, 2019 Nov 4, 2018
Selected Financial Data (US$ in millions)
Dividends to common stockholders 7,645 6,733 5,913 5,235 4,235 2,921
Dividends to preferred stockholders — 272 299 297 29 —
Net income attributable to Broadcom Inc. stockholders 14,082 11,495 6,736 2,960 2,724 12,259
Net revenue 35,819 33,203 27,450 23,888 22,597 20,848
Total assets 72,861 73,249 75,570 75,933 67,493 50,124
Stockholders’ equity 23,988 22,709 24,962 23,874 24,941 26,657
Financial Ratios
Retention rate1 0.46 0.40 0.08 -0.97 -0.57 0.76
Profit margin2 39.31% 33.80% 23.45% 11.15% 11.93% 58.80%
Asset turnover3 0.49 0.45 0.36 0.31 0.33 0.42
Financial leverage4 3.04 3.23 3.03 3.18 2.71 1.88
Averages
Retention rate 0.03
Profit margin 29.74%
Asset turnover 0.40
Financial leverage 3.04
 
Dividend growth rate (g)5 0.97%

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-11-01), 10-K (reporting date: 2019-11-03), 10-K (reporting date: 2018-11-04).

2023 Calculations

1 Retention rate = (Net income attributable to Broadcom Inc. stockholders – Dividends to common stockholders – Dividends to preferred stockholders) ÷ (Net income attributable to Broadcom Inc. stockholders – Dividends to preferred stockholders)
= (14,082 – 7,645 – 0) ÷ (14,082 – 0)
= 0.46

2 Profit margin = 100 × (Net income attributable to Broadcom Inc. stockholders – Dividends to preferred stockholders) ÷ Net revenue
= 100 × (14,082 – 0) ÷ 35,819
= 39.31%

3 Asset turnover = Net revenue ÷ Total assets
= 35,819 ÷ 72,861
= 0.49

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 72,861 ÷ 23,988
= 3.04

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.03 × 29.74% × 0.40 × 3.04
= 0.97%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × r – D0) ÷ (P0 + D0)
= 100 × ($1,204.71 × 14.06% – $18.40) ÷ ($1,204.71 + $18.40)
= 12.35%

where:
P0 = current price of share of Broadcom Inc. common stock
D0 = the last year dividends per share of Broadcom Inc. common stock
r = required rate of return on Broadcom Inc. common stock

Dividend growth rate (g) forecast

Broadcom Inc., H-model

Microsoft Excel
Year Value gt
1 g1 0.97%
2 g2 3.81%
3 g3 6.66%
4 g4 9.50%
5 and thereafter g5 12.35%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 0.97% + (12.35% – 0.97%) × (2 – 1) ÷ (5 – 1)
= 3.81%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.97% + (12.35% – 0.97%) × (3 – 1) ÷ (5 – 1)
= 6.66%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.97% + (12.35% – 0.97%) × (4 – 1) ÷ (5 – 1)
= 9.50%