KLA Corp. (NASDAQ:KLAC)

Present Value of Free Cash Flow to Equity (FCFE)

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

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Intrinsic Stock Value (Valuation Summary)

KLA Corp., free cash flow to equity (FCFE) forecast

US\$ in thousands, except per share data

Year Value FCFEt or Terminal value (TVt) Calculation Present value at
01 FCFE0
1 FCFE1 = × (1 + )
2 FCFE2 = × (1 + )
3 FCFE3 = × (1 + )
4 FCFE4 = × (1 + )
5 FCFE5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of KLA Corp. common stock

Intrinsic value of KLA Corp. common stock (per share)
Current share price

Based on: 10-K (reporting date: 2022-06-30).

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)

 Assumptions Rate of return on LT Treasury Composite1 RF Expected rate of return on market portfolio2 E(RM) Systematic risk of KLA Corp. common stock βKLAC Required rate of return on KLA Corp. common stock3 rKLAC

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).

3 rKLAC = RF + βKLAC [E(RM) – RF]
= + []
=

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

KLA Corp., PRAT model

Average Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017
Selected Financial Data (US\$ in thousands)
Cash dividends and dividend equivalents declared
Net income attributable to KLA
Revenues
Total assets
Total KLA stockholders’ equity
Financial Ratios
Retention rate1
Profit margin2
Asset turnover3
Financial leverage4
Averages
Retention rate
Profit margin
Asset turnover
Financial leverage

FCFE growth rate (g)5

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

2022 Calculations

1 Retention rate = (Net income attributable to KLA – Cash dividends and dividend equivalents declared) ÷ Net income attributable to KLA
= () ÷
=

2 Profit margin = 100 × Net income attributable to KLA ÷ Revenues
= 100 × ÷
=

3 Asset turnover = Revenues ÷ Total assets
= ÷
=

4 Financial leverage = Total assets ÷ Total KLA stockholders’ equity
= ÷
=

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= × × ×
=

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × ( × ) ÷ ( + )
=

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

FCFE growth rate (g) forecast

KLA Corp., H-model

Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

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)
= + () × (2 – 1) ÷ (5 – 1)
=

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1)
=

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1)
=