Stock Analysis on Net

NVIDIA Corp. (NASDAQ:NVDA)

Present Value of Free Cash Flow to Equity (FCFE) 

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Intrinsic Stock Value (Valuation Summary)

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

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 17.51%
01 FCFE0 12,109
1 FCFE1 15,711 = 12,109 × (1 + 29.75%) 13,370
2 FCFE2 19,775 = 15,711 × (1 + 25.86%) 14,320
3 FCFE3 24,121 = 19,775 × (1 + 21.98%) 14,865
4 FCFE4 28,486 = 24,121 × (1 + 18.10%) 14,938
5 FCFE5 32,534 = 28,486 × (1 + 14.21%) 14,519
5 Terminal value (TV5) 1,125,803 = 32,534 × (1 + 14.21%) ÷ (17.51%14.21%) 502,411
Intrinsic value of NVIDIA Corp. common stock 574,423
 
Intrinsic value of NVIDIA Corp. common stock (per share) $228.85
Current share price $166.94

Based on: 10-K (reporting date: 2022-01-30).

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)

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Assumptions
Rate of return on LT Treasury Composite1 RF 3.12%
Expected rate of return on market portfolio2 E(RM) 13.11%
Systematic risk of NVIDIA Corp. common stock βNVDA 1.44
 
Required rate of return on NVIDIA Corp. common stock3 rNVDA 17.51%

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 rNVDA = RF + βNVDA [E(RM) – RF]
= 3.12% + 1.44 [13.11%3.12%]
= 17.51%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

NVIDIA Corp., PRAT model

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Average Jan 30, 2022 Jan 31, 2021 Jan 26, 2020 Jan 27, 2019 Jan 28, 2018 Jan 29, 2017
Selected Financial Data (US$ in millions)
Cash dividends declared and paid 399  395  390  371  341  261 
Net income 9,752  4,332  2,796  4,141  3,047  1,666 
Revenue 26,914  16,675  10,918  11,716  9,714  6,910 
Total assets 44,187  28,791  17,315  13,292  11,241  9,841 
Shareholders’ equity 26,612  16,893  12,204  9,342  7,471  5,762 
Financial Ratios
Retention rate1 0.96 0.91 0.86 0.91 0.89 0.84
Profit margin2 36.23% 25.98% 25.61% 35.34% 31.37% 24.11%
Asset turnover3 0.61 0.58 0.63 0.88 0.86 0.70
Financial leverage4 1.66 1.70 1.42 1.42 1.50 1.71
Averages
Retention rate 0.90
Profit margin 29.77%
Asset turnover 0.71
Financial leverage 1.57
 
FCFE growth rate (g)5 29.75%

Based on: 10-K (reporting date: 2022-01-30), 10-K (reporting date: 2021-01-31), 10-K (reporting date: 2020-01-26), 10-K (reporting date: 2019-01-27), 10-K (reporting date: 2018-01-28), 10-K (reporting date: 2017-01-29).

2022 Calculations

1 Retention rate = (Net income – Cash dividends declared and paid) ÷ Net income
= (9,752399) ÷ 9,752
= 0.96

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 9,752 ÷ 26,914
= 36.23%

3 Asset turnover = Revenue ÷ Total assets
= 26,914 ÷ 44,187
= 0.61

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 44,187 ÷ 26,612
= 1.66

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.90 × 29.77% × 0.71 × 1.57
= 29.75%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (419,019 × 17.51%12,109) ÷ (419,019 + 12,109)
= 14.21%

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


FCFE growth rate (g) forecast

NVIDIA Corp., H-model

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Year Value gt
1 g1 29.75%
2 g2 25.86%
3 g3 21.98%
4 g4 18.10%
5 and thereafter g5 14.21%

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)
= 29.75% + (14.21%29.75%) × (2 – 1) ÷ (5 – 1)
= 25.86%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 29.75% + (14.21%29.75%) × (3 – 1) ÷ (5 – 1)
= 21.98%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 29.75% + (14.21%29.75%) × (4 – 1) ÷ (5 – 1)
= 18.10%