Current Price: ~ $61/share
Projected Yield: ~ 1.41%
Qualcomm develops and licenses wireless technology and manufactures semiconductors for mobile phones. The company's key patents revolve around CDMA technology, which is a standard in wireless communications and is licensed by most major handset makers. The firm is also the world's largest wireless chipmaker, supplying many leading handset makers with cutting-edge processors. Qualcomm also has a variety of new ventures in development, such as Mirasol, a mobile display technology.
Estimated WACC for the firm today is 11.49% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year
|
FCF
$Millions
|
2002
|
826
|
2003
|
1543
|
2004
|
2136
|
2005
|
2110
|
2006
|
2568
|
2007
|
2993
|
2008
|
2161
|
2009
|
6411
|
2010
|
3650
|
2011
|
4307
|
Average Annual Growth FCF: ~ 34%
CAGR FCF: ~ 20%
Consensus Forecast Industry 5-Year Growth: ~ 15% per year
Consensus Forecast Company 5-Year Growth: ~ 16% per year
Internal Growth Rate: ~ 9%
Sustainable Growth Rate: ~ 14%
Scenario 1
Starting at $4307 million FCF, assume the company achieves a 5-year growth rate in FCF of 16% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year
|
FCF
$Millions
|
0
|
4307
|
1
|
4996
|
2
|
5795
|
3
|
6723
|
4
|
7798
|
5
|
9046
|
Terminal
Value
|
91310
|
The firm's future cash flows, discounted at a WACC of 11.49%, give a present value for the entire firm (Debt + Equity) of $77294 million. If the firm's fair value of debt is estimated at $928 million, then the fair value of the firm's equity could be $76366 million. $76366 million / 1680 million outstanding shares is approximately $45 per share and a 20% margin of safety is $36/share.
Scenario 2
All else being equal, assume the company achieves a 5-year growth rate in FCF of 16% per year, then 4% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year
|
FCF
$Millions
|
0
|
4307
|
1
|
4996
|
2
|
5795
|
3
|
6723
|
4
|
7798
|
5
|
9046
|
Terminal
Value
|
140059
|
The firm's future cash flows, discounted at a WACC of 11.49%, give a present value for the entire firm (Debt + Equity) of $105591 million. If the firm's fair value of debt is estimated at $928 million, then the fair value of the firm's equity could be $104663 million. $104663 million / 1680 million outstanding shares is approximately $62 per share and a 20% margin of safety is $50/share.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
No comments:
Post a Comment