Projected Yield: ~ 1.58%

Dallas-based Texas Instruments generates 96% of its revenue from semiconductors and 4% from its well-known calculators. TI is the world's largest maker of analog chips, which are used to process real-world signals, such as sound and power. TI also has leading market share positions in digital signal processors, used in cell phones, as well as applications processors, where its chips are used to run software and applications in mobile devices.

I estimated the firm's WACC today at 12.09% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year | FCF $Millions |

2001 | 29 |

2002 | 1190 |

2003 | 1351 |

2004 | 1848 |

2005 | 2442 |

2006 | 1188 |

2007 | 3720 |

2008 | 2567 |

2009 | 1890 |

2010 | 2621 |

TTM | 2452 |

Average Annual Growth FCF ex-2001: ~ 28%

CAGR FCF ex-2001: ~ 10%

Consensus Forecast Industry 5-Year Growth: ~ 16% per yearConsensus Forecast Company 5-Year Growth: ~ 11% per year

**Scenario 1**

Starting at $2621 million FCF, assuming the company achieves a 5-year growth rate in FCF of 11% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 2621 |

1 | 2909 |

2 | 3229 |

3 | 3585 |

4 | 3979 |

5 | 4417 |

Terminal Value | 40561 |

The firm's future cash flows, discounted at a WACC of 12.09%, give a present value for the entire firm (Debt + Equity) of $35,656 million. If the firm's fair value of debt is estimated at $3500 million, then the fair value of the firm's equity could be $32,156 million. $32,156 million / 1160 million outstanding shares is approximately $28 per share and a 20% margin of safety is $22/share.

**Scenario 2**

Starting at $2621 million FCF, assuming the company achieves a 5-year growth rate in FCF of 11% per year, and then a growth rate in FCF of 3% per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 2621 |

1 | 2909 |

2 | 3229 |

3 | 3585 |

4 | 3979 |

5 | 4417 |

Terminal Value | 53953 |

The firm's future cash flows, discounted at a WACC of 12.09%, give a present value for the entire firm (Debt + Equity) of $43,226 million. If the firm's fair value of debt is estimated at $3500 million, then the fair value of the firm's equity could be $39,726 million. $39,726 million / 1160 million outstanding shares is approximately $34 per share and a 20% margin of safety is $27/share.

**Disclosure:**I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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