Stock Analysis on Net
Stock Analysis on Net

Qualcomm Inc. (NASDAQ:QCOM)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel LibreOffice Calc

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company’s asset base.


Intrinsic Stock Value (Valuation Summary)

Qualcomm Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.40%
01 FCFE0 4,178
1 FCFE1 4,602 = 4,178 × (1 + 10.16%) 3,954
2 FCFE2 5,105 = 4,602 × (1 + 10.93%) 3,768
3 FCFE3 5,703 = 5,105 × (1 + 11.70%) 3,616
4 FCFE4 6,414 = 5,703 × (1 + 12.47%) 3,494
5 FCFE5 7,263 = 6,414 × (1 + 13.24%) 3,399
5 Terminal value (TV5) 260,325 = 7,263 × (1 + 13.24%) ÷ (16.40%13.24%) 121,829
Intrinsic value of Qualcomm Inc.’s common stock 140,060
 
Intrinsic value of Qualcomm Inc.’s common stock (per share) $124.17
Current share price $132.76

Based on: 10-K (filing date: 2020-11-04).

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)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF 1.76%
Expected rate of return on market portfolio2 E(RM) 11.84%
Systematic risk of Qualcomm Inc.’s common stock βQCOM 1.45
 
Required rate of return on Qualcomm Inc.’s common stock3 rQCOM 16.40%

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 rQCOM = RF + βQCOM [E(RM) – RF]
= 1.76% + 1.45 [11.84%1.76%]
= 16.40%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Qualcomm Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Sep 27, 2020 Sep 29, 2019 Sep 30, 2018 Sep 24, 2017 Sep 25, 2016 Sep 27, 2015
Selected Financial Data (US$ in millions)
Dividends 2,972  3,034  3,517  3,314  3,046  2,932 
Net income (loss) attributable to Qualcomm 5,198  4,386  (4,864) 2,466  5,705  5,271 
Revenues 23,531  24,273  22,732  22,291  23,554  25,281 
Total assets 35,594  32,957  32,686  65,486  52,359  50,796 
Total Qualcomm stockholders’ equity 6,077  4,909  928  30,746  31,778  31,421 
Financial Ratios
Retention rate1 0.43 0.31 -0.34 0.47 0.44
Profit margin2 22.09% 18.07% -21.40% 11.06% 24.22% 20.85%
Asset turnover3 0.66 0.74 0.70 0.34 0.45 0.50
Financial leverage4 5.86 6.71 35.22 2.13 1.65 1.62
Averages
Retention rate 0.26
Profit margin 19.26%
Asset turnover 0.56
Financial leverage 3.59
 
FCFE growth rate (g)5 10.16%

Based on: 10-K (filing date: 2020-11-04), 10-K (filing date: 2019-11-06), 10-K (filing date: 2018-11-07), 10-K (filing date: 2017-11-01), 10-K (filing date: 2016-11-02), 10-K (filing date: 2015-11-04).

2020 Calculations

1 Retention rate = (Net income (loss) attributable to Qualcomm – Dividends) ÷ Net income (loss) attributable to Qualcomm
= (5,1982,972) ÷ 5,198
= 0.43

2 Profit margin = 100 × Net income (loss) attributable to Qualcomm ÷ Revenues
= 100 × 5,198 ÷ 23,531
= 22.09%

3 Asset turnover = Revenues ÷ Total assets
= 23,531 ÷ 35,594
= 0.66

4 Financial leverage = Total assets ÷ Total Qualcomm stockholders’ equity
= 35,594 ÷ 6,077
= 5.86

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.26 × 19.26% × 0.56 × 3.59
= 10.16%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (149,753 × 16.40%4,178) ÷ (149,753 + 4,178)
= 13.24%

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


FCFE growth rate (g) forecast

Qualcomm Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 10.16%
2 g2 10.93%
3 g3 11.70%
4 g4 12.47%
5 and thereafter g5 13.24%

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)
= 10.16% + (13.24%10.16%) × (2 – 1) ÷ (5 – 1)
= 10.93%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 10.16% + (13.24%10.16%) × (3 – 1) ÷ (5 – 1)
= 11.70%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 10.16% + (13.24%10.16%) × (4 – 1) ÷ (5 – 1)
= 12.47%