Stock Analysis on Net
Stock Analysis on Net

Lam Research Corp. (NASDAQ:LRCX)

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)

Lam Research Corp., 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 16.80%
01 FCFF0 4,811,491
1 FCFF1 5,938,649 = 4,811,491 × (1 + 23.43%) 5,084,647
2 FCFF2 7,165,954 = 5,938,649 × (1 + 20.67%) 5,253,157
3 FCFF3 8,449,122 = 7,165,954 × (1 + 17.91%) 5,303,116
4 FCFF4 9,728,867 = 8,449,122 × (1 + 15.15%) 5,228,234
5 FCFF5 10,933,936 = 9,728,867 × (1 + 12.39%) 5,030,862
5 Terminal value (TV5) 278,698,565 = 10,933,936 × (1 + 12.39%) ÷ (16.80% – 12.39%) 128,233,244
Intrinsic value of Lam Research Corp. capital 154,133,261
Less: Long-term debt and finance lease obligations (fair value) 4,456,204
Intrinsic value of Lam Research Corp. common stock 149,677,057
 
Intrinsic value of Lam Research Corp. common stock (per share) $1,141.68
Current share price $901.47

Based on: 10-K (reporting date: 2023-06-25).

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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)

Lam Research Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 118,185,421 0.96 17.31%
Long-term debt and finance lease obligations (fair value) 4,456,204 0.04 3.18% = 3.57% × (1 – 10.80%)

Based on: 10-K (reporting date: 2023-06-25).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 131,103,000 × $901.47
= $118,185,421,410.00

   Long-term debt and finance lease obligations (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
= (11.71% + 11.32% + 10.58% + 12.55% + 7.82% + 28.27%) ÷ 6
= 10.80%

WACC = 16.80%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Lam Research Corp., PRAT model

Microsoft Excel
Average Jun 25, 2023 Jun 26, 2022 Jun 27, 2021 Jun 28, 2020 Jun 30, 2019 Jun 24, 2018
Selected Financial Data (US$ in thousands)
Interest expense 186,462 184,759 208,597 177,440 117,263 97,387
Net income 4,510,931 4,605,286 3,908,458 2,251,753 2,191,430 2,380,681
 
Effective income tax rate (EITR)1 11.71% 11.32% 10.58% 12.55% 7.82% 28.27%
 
Interest expense, after tax2 164,627 163,844 186,527 155,171 108,093 69,856
Add: Cash dividends declared 933,559 835,474 745,294 665,099 662,844 409,243
Interest expense (after tax) and dividends 1,098,186 999,318 931,821 820,270 770,937 479,099
 
EBIT(1 – EITR)3 4,675,558 4,769,130 4,094,985 2,406,924 2,299,523 2,450,537
 
Current portion of long-term debt and finance lease obligations 8,358 7,381 11,349 839,877 667,131 610,030
Long-term debt and finance lease obligations, less current portion 5,003,183 4,998,449 4,990,333 4,970,848 3,822,768 1,806,562
Stockholders’ equity 8,210,172 6,278,366 6,027,188 5,172,494 4,673,865 6,501,851
Total capital 13,221,713 11,284,196 11,028,870 10,983,219 9,163,764 8,918,443
Financial Ratios
Retention rate (RR)4 0.77 0.79 0.77 0.66 0.66 0.80
Return on invested capital (ROIC)5 35.36% 42.26% 37.13% 21.91% 25.09% 27.48%
Averages
RR 0.74
ROIC 31.54%
 
FCFF growth rate (g)6 23.43%

Based on: 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-24).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 186,462 × (1 – 11.71%)
= 164,627

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 4,510,931 + 164,627
= 4,675,558

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,675,558 – 1,098,186] ÷ 4,675,558
= 0.77

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,675,558 ÷ 13,221,713
= 35.36%

6 g = RR × ROIC
= 0.74 × 31.54%
= 23.43%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (122,641,625 × 16.80% – 4,811,491) ÷ (122,641,625 + 4,811,491)
= 12.39%

where:

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

FCFF growth rate (g) forecast

Lam Research Corp., H-model

Microsoft Excel
Year Value gt
1 g1 23.43%
2 g2 20.67%
3 g3 17.91%
4 g4 15.15%
5 and thereafter g5 12.39%

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)
= 23.43% + (12.39% – 23.43%) × (2 – 1) ÷ (5 – 1)
= 20.67%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 23.43% + (12.39% – 23.43%) × (3 – 1) ÷ (5 – 1)
= 17.91%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 23.43% + (12.39% – 23.43%) × (4 – 1) ÷ (5 – 1)
= 15.15%