Stock Analysis on Net
Stock Analysis on Net

Lumentum Holdings Inc. (NASDAQ:LITE)

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)

Lumentum Holdings Inc., 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 18.33%
01 FCFF0 357,698
1 FCFF1 360,441 = 357,698 × (1 + 0.77%) 304,596
2 FCFF2 378,592 = 360,441 × (1 + 5.04%) 270,366
3 FCFF3 413,818 = 378,592 × (1 + 9.30%) 249,736
4 FCFF4 469,986 = 413,818 × (1 + 13.57%) 239,689
5 FCFF5 553,842 = 469,986 × (1 + 17.84%) 238,692
5 Terminal value (TV5) 132,690,228 = 553,842 × (1 + 17.84%) ÷ (18.33% – 17.84%) 57,186,288
Intrinsic value of Lumentum Holdings Inc. capital 58,489,367
Less: Debt (fair value) 7,700,000
Intrinsic value of Lumentum Holdings Inc. common stock 50,789,367
 
Intrinsic value of Lumentum Holdings Inc. common stock (per share) $566.21
Current share price $869.54

Based on: 10-K (reporting date: 2026-06-27).

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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)

Lumentum Holdings Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 77,997,738 0.91 20.05%
Debt (fair value) 7,700,000 0.09 0.99% = 1.22% × (1 – 18.52%)

Based on: 10-K (reporting date: 2026-06-27).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 89,700,000 × $869.54
= $77,997,738,000.00

   Debt (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
= (3.20% + 21.00% + 21.00% + 21.00% + 15.40% + 14.22%) ÷ 6
= 18.52%

WACC = 18.33%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Lumentum Holdings Inc., PRAT model

Microsoft Excel
Average Jun 27, 2026 Jun 28, 2025 Jun 29, 2024 Jul 1, 2023 Jul 2, 2022 Jul 3, 2021
Selected Financial Data (US$ in thousands)
Interest expense 21,800 22,200 33,800 35,500 80,200 66,700
Net income (loss) (6,935,100) 25,900 (546,500) (131,600) 198,900 397,300
 
Effective income tax rate (EITR)1 3.20% 21.00% 21.00% 21.00% 15.40% 14.22%
 
Interest expense, after tax2 21,102 17,538 26,702 28,045 67,849 57,215
Interest expense (after tax) and dividends 21,102 17,538 26,702 28,045 67,849 57,215
 
EBIT(1 – EITR)3 (6,913,998) 43,438 (519,798) (103,555) 266,749 454,515
 
Current portion of long-term debt 1,596,900 10,600 — 311,600 409,900 390,700
Long-term debt, excluding current portion 40,500 2,562,600 2,503,200 2,500,000 1,466,100 789,800
Stockholders’ equity 4,643,900 1,134,700 957,300 1,355,800 1,875,000 1,972,800
Total capital 6,281,300 3,707,900 3,460,500 4,167,400 3,751,000 3,153,300
Financial Ratios
Retention rate (RR)4 — 0.60 — — 0.75 0.87
Return on invested capital (ROIC)5 -110.07% 1.17% -15.02% -2.48% 7.11% 14.41%
Averages
RR 0.74
ROIC 1.04%
 
FCFF growth rate (g)6 0.77%

Based on: 10-K (reporting date: 2026-06-27), 10-K (reporting date: 2025-06-28), 10-K (reporting date: 2024-06-29), 10-K (reporting date: 2023-07-01), 10-K (reporting date: 2022-07-02), 10-K (reporting date: 2021-07-03).

1 See details »

2026 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 21,800 × (1 – 3.20%)
= 21,102

3 EBIT(1 – EITR) = Net income (loss) + Interest expense, after tax
= -6,935,100 + 21,102
= -6,913,998

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [-6,913,998 – 21,102] ÷ -6,913,998
= —

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × -6,913,998 ÷ 6,281,300
= -110.07%

6 g = RR × ROIC
= 0.74 × 1.04%
= 0.77%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (85,697,738 × 18.33% – 357,698) ÷ (85,697,738 + 357,698)
= 17.84%

where:

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

FCFF growth rate (g) forecast

Lumentum Holdings Inc., H-model

Microsoft Excel
Year Value gt
1 g1 0.77%
2 g2 5.04%
3 g3 9.30%
4 g4 13.57%
5 and thereafter g5 17.84%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 0.77% + (17.84% – 0.77%) × (2 – 1) ÷ (5 – 1)
= 5.04%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.77% + (17.84% – 0.77%) × (3 – 1) ÷ (5 – 1)
= 9.30%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.77% + (17.84% – 0.77%) × (4 – 1) ÷ (5 – 1)
= 13.57%