Yield: ~ 2.74%
Analog Devices Inc is engaged in the design, manufacture and marketing of a portfolio of highperformance analog, mixedsignal and digital signal processing integrated circuits used in virtually all types of electronic equipment.
Estimated WACC for the firm today is 12.93% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
Year

FCF $Millions

2004

632

2005

587

2006

492

2007

679

2008

512

2009

376

2010

880

2011

778

2012

682

2013

789

Average Annual Growth FCF: ~ 10%
CAGR FCF: ~ 2.5%
Consensus Forecast Industry 5Year Growth: ~ 24.6% per year
Consensus Forecast Company 5Year Growth: ~ 11% per year
Internal Growth Rate: ~ 4.5%
Sustainable Growth Rate: ~ 6%
Scenario 1
Average FCF (2013  2011) is $750 million
Average FCF (2013  2011) is $750 million
 Start at $750 million FCF
 Assume a 5year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future free cash flows, discounted at a WACC of 12.93%, give a present value for the entire firm (Debt + Equity) of $9467 million. If the firm's fair value of debt is estimated at $872 million, then the fair value of the firm's equity could be $8595 million. $8595 million / 311 million outstanding shares is approximately $28 per share and a 20% margin of safety is $22/share.
Year

FCF $Millions

0

750

1

833

2

924

3

1026

4

1139

5

1264

Terminal Value

10847

The firm's future free cash flows, discounted at a WACC of 12.93%, give a present value for the entire firm (Debt + Equity) of $9467 million. If the firm's fair value of debt is estimated at $872 million, then the fair value of the firm's equity could be $8595 million. $8595 million / 311 million outstanding shares is approximately $28 per share and a 20% margin of safety is $22/share.
Scenario 2
All else being equal,
All else being equal,
 Assume a 5year growth rate in FCF of 11% per year, then 7% growth in FCF per year forever:
Discounted Cash Flow Valuation
Year

FCF $Millions

0

750

1

833

2

924

3

1026

4

1139

5

1264

Terminal Value

23647

 Present Value of the entire firm (Debt + Equity): $16435 million
 Value of Equity: $15563 million or $50/share
 20% margin of safety is $40/share
Sources
Disclosure: I have no real positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.