Stock Analysis on Net
Stock Analysis on Net

Microchip Technology Inc. (NASDAQ:MCHP)

This company has been moved to the archive! The financial data has not been updated since February 2, 2023.

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)

Microchip Technology 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 16.09%
01 FCFF0 2,652,783
1 FCFF1 2,650,626 = 2,652,783 × (1 + -0.08%) 2,283,286
2 FCFF2 2,719,857 = 2,650,626 × (1 + 2.61%) 2,018,226
3 FCFF3 2,864,148 = 2,719,857 × (1 + 5.31%) 1,830,759
4 FCFF4 3,093,231 = 2,864,148 × (1 + 8.00%) 1,703,177
5 FCFF5 3,423,944 = 3,093,231 × (1 + 10.69%) 1,624,000
5 Terminal value (TV5) 70,228,312 = 3,423,944 × (1 + 10.69%) ÷ (16.09% – 10.69%) 33,309,773
Intrinsic value of Microchip Technology Inc. capital 42,769,222
Less: Debt and Credit Facility (fair value) 8,105,900
Intrinsic value of Microchip Technology Inc. common stock 34,663,322
 
Intrinsic value of Microchip Technology Inc. common stock (per share) $63.28
Current share price $84.53

Based on: 10-K (reporting date: 2022-03-31).

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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)

Microchip Technology Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 46,305,187 0.85 18.48%
Debt and Credit Facility (fair value) 8,105,900 0.15 2.43% = 3.12% × (1 – 22.26%)

Based on: 10-K (reporting date: 2022-03-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 547,795,897 × $84.53
= $46,305,187,173.41

   Debt and Credit Facility (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
= (13.29% + 21.00% + 21.00% + 21.00% + 65.36% + 35.00%) ÷ 6
= 22.26%

WACC = 16.09%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Microchip Technology Inc., PRAT model

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Average Mar 31, 2022 Mar 31, 2021 Mar 31, 2020 Mar 31, 2019 Mar 31, 2018 Mar 31, 2017
Selected Financial Data (US$ in thousands)
Interest expense 257,000 356,900 497,300 502,900 199,000 146,346
Net loss from discontinued operations — — — — — (5,953)
Net income 1,285,500 349,400 570,600 355,900 255,400 164,639
 
Effective income tax rate (EITR)1 13.29% 21.00% 21.00% 21.00% 65.36% 35.00%
 
Interest expense, after tax2 222,845 281,951 392,867 397,291 68,934 95,125
Add: Cash dividend 503,800 388,300 350,100 344,400 337,500 315,429
Interest expense (after tax) and dividends 726,645 670,251 742,967 741,691 406,434 410,554
 
EBIT(1 – EITR)3 1,508,345 631,351 963,467 753,191 324,334 265,717
 
Current portion of long-term debt — 1,322,900 608,800 1,360,800 1,309,900 49,952
Long-term debt excluding current maturities 7,687,400 7,581,200 8,873,400 8,946,200 1,758,400 2,900,524
Stockholders’ equity 5,894,800 5,337,100 5,585,500 5,287,500 3,279,800 3,270,711
Total capital 13,582,200 14,241,200 15,067,700 15,594,500 6,348,100 6,221,187
Financial Ratios
Retention rate (RR)4 0.52 -0.06 0.23 0.02 -0.25 -0.55
Return on invested capital (ROIC)5 11.11% 4.43% 6.39% 4.83% 5.11% 4.27%
Averages
RR -0.02
ROIC 5.01%
 
FCFF growth rate (g)6 -0.08%

Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).

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2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 257,000 × (1 – 13.29%)
= 222,845

3 EBIT(1 – EITR) = Net income – Net loss from discontinued operations + Interest expense, after tax
= 1,285,500 – 0 + 222,845
= 1,508,345

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,508,345 – 726,645] ÷ 1,508,345
= 0.52

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,508,345 ÷ 13,582,200
= 11.11%

6 g = RR × ROIC
= -0.02 × 5.01%
= -0.08%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (54,411,087 × 16.09% – 2,652,783) ÷ (54,411,087 + 2,652,783)
= 10.69%

where:

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

FCFF growth rate (g) forecast

Microchip Technology Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -0.08%
2 g2 2.61%
3 g3 5.31%
4 g4 8.00%
5 and thereafter g5 10.69%

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)
= -0.08% + (10.69% – -0.08%) × (2 – 1) ÷ (5 – 1)
= 2.61%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.08% + (10.69% – -0.08%) × (3 – 1) ÷ (5 – 1)
= 5.31%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.08% + (10.69% – -0.08%) × (4 – 1) ÷ (5 – 1)
= 8.00%