Current Price: ~ $34/share
Projected Yield: ~ 2.04%
Dallas-based Texas Instruments generates about 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 a leading market share position in digital signal processors, used in wireless communications, and has a growing mobile processor business line that is used to run software and applications in many popular smartphones and tablets.
Estimated WACC for the firm today is 11.92% 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
|
1190
|
|
2003
|
1351
|
|
2004
|
1848
|
|
2005
|
2442
|
|
2006
|
1188
|
|
2007
|
3720
|
|
2008
|
2567
|
|
2009
|
1890
|
|
2010
|
2621
|
|
2011
|
2440
|
Average Annual Growth FCF: ~ 24%
CAGR FCF: ~ 8%
Consensus Forecast Industry 5-Year Growth: ~ 15% per year
Consensus Forecast Company 5-Year Growth: ~ 7% per year
Internal Growth Rate: ~ 10%
Sustainable Growth Rate: ~ 17%
Scenario 1
Average FCF (2011, 2010, 2009) is $2317 million
Average FCF (2011, 2010, 2009) is $2317 million
- Start at $2317 million FCF
- Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future cash flows, discounted at a WACC of 11.92%, give a present value for the entire firm (Debt + Equity) of $26748 million. If the firm's fair value of debt is estimated at $4600 million, then the fair value of the firm's equity could be $22148 million. $22148 million / 1140 million outstanding shares is approximately $19 per share and a 20% margin of safety is $15/share.
|
Year
|
FCF
$Millions
|
|
0
|
2317
|
|
1
|
2479
|
|
2
|
2653
|
|
3
|
2838
|
|
4
|
3037
|
|
5
|
3250
|
|
Terminal
Value
|
29163
|
The firm's future cash flows, discounted at a WACC of 11.92%, give a present value for the entire firm (Debt + Equity) of $26748 million. If the firm's fair value of debt is estimated at $4600 million, then the fair value of the firm's equity could be $22148 million. $22148 million / 1140 million outstanding shares is approximately $19 per share and a 20% margin of safety is $15/share.
Scenario 2
All else being equal,
All else being equal,
- Assume a 5-year growth rate in FCF of 7% per year, then 6% growth in FCF per year forever:
Discounted Cash Flow Valuation
|
Year
|
FCF
$Millions
|
|
0
|
2,317
|
|
1
|
2479
|
|
2
|
2653
|
|
3
|
2838
|
|
4
|
3037
|
|
5
|
3250
|
|
Terminal
Value
|
58705
|
- Present Value of the entire firm (Debt + Equity): $43568 million
- Value of Equity: $38968 million or $34/share
- 20% margin of safety is $27/share
Sources
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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