Stock Analysis on Net
Stock Analysis on Net
Microsoft Excel LibreOffice Calc

Lam Research Corp. (NASDAQ:LRCX)

Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

Intrinsic Stock Value (Valuation Summary)

Lam Research Corp., 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 16.49%
01 FCFE0 3,230,326 
1 FCFE1 3,944,012  = 3,230,326 × (1 + 22.09%) 3,385,835 
2 FCFE2 4,705,175  = 3,944,012 × (1 + 19.30%) 3,467,614 
3 FCFE3 5,481,769  = 4,705,175 × (1 + 16.51%) 3,468,193 
4 FCFE4 6,233,374  = 5,481,769 × (1 + 13.71%) 3,385,581 
5 FCFE5 6,913,864  = 6,233,374 × (1 + 10.92%) 3,223,728 
5 Terminal value (TV5) 137,707,796  = 6,913,864 × (1 + 10.92%) ÷ (16.49%10.92%) 64,209,020 
Intrinsic value of Lam Research Corp.’s common stock 81,139,971 
 
Intrinsic value of Lam Research Corp.’s common stock (per share) $563.44
Current share price $446.78

Based on: 10-K (filing date: 2020-08-18).

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 1.43%
Expected rate of return on market portfolio2 E(RM) 12.46%
Systematic risk of Lam Research Corp.’s common stock βLRCX 1.37
 
Required rate of return on Lam Research Corp.’s common stock3 rLRCX 16.49%

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 rLRCX = RF + βLRCX [E(RM) – RF]
= 1.43% + 1.37 [12.46%1.43%]
= 16.49%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Lam Research Corp., PRAT model

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Average Jun 28, 2020 Jun 30, 2019 Jun 24, 2018 Jun 25, 2017 Jun 26, 2016 Jun 28, 2015
Selected Financial Data (US$ in thousands)
Cash dividends declared 665,099  662,844  409,243  268,181  190,795  134,459 
Net income 2,251,753  2,191,430  2,380,681  1,697,763  914,049  655,577 
Revenue 10,044,736  9,653,559  11,076,998  8,013,620  5,885,893  5,259,312 
Total assets 14,559,047  12,001,333  12,479,478  12,122,765  12,271,528  9,364,648 
Stockholders’ equity 5,172,494  4,673,865  6,501,851  6,817,451  5,894,517  5,103,144 
Financial Ratios
Retention rate1 0.70 0.70 0.83 0.84 0.79 0.79
Profit margin2 22.42% 22.70% 21.49% 21.19% 15.53% 12.47%
Asset turnover3 0.69 0.80 0.89 0.66 0.48 0.56
Financial leverage4 2.81 2.57 1.92 1.78 2.08 1.84
Averages
Retention rate 0.78
Profit margin 19.30%
Asset turnover 0.68
Financial leverage 2.17
 
FCFE growth rate (g)5 22.09%

Based on: 10-K (filing date: 2020-08-18), 10-K (filing date: 2019-08-20), 10-K (filing date: 2018-08-14), 10-K (filing date: 2017-08-15), 10-K (filing date: 2016-08-17), 10-K (filing date: 2015-08-13).

2020 Calculations

1 Retention rate = (Net income – Cash dividends declared) ÷ Net income
= (2,251,753665,099) ÷ 2,251,753 = 0.70

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 2,251,753 ÷ 10,044,736 = 22.42%

3 Asset turnover = Revenue ÷ Total assets
= 10,044,736 ÷ 14,559,047 = 0.69

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 14,559,047 ÷ 5,172,494 = 2.81

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.78 × 19.30% × 0.68 × 2.17 = 22.09%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (64,340,439 × 16.49%3,230,326) ÷ (64,340,439 + 3,230,326) = 10.92%

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


FCFE growth rate (g) forecast

Lam Research Corp., H-model

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Year Value gt
1 g1 22.09%
2 g2 19.30%
3 g3 16.51%
4 g4 13.71%
5 and thereafter g5 10.92%

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)
= 22.09% + (10.92%22.09%) × (2 – 1) ÷ (5 – 1) = 19.30%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 22.09% + (10.92%22.09%) × (3 – 1) ÷ (5 – 1) = 16.51%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 22.09% + (10.92%22.09%) × (4 – 1) ÷ (5 – 1) = 13.71%