Intrinsic value of Analog Devices - ADI

Previous Close

$85.18

  Intrinsic Value

$770.14

stock screener

  Rating & Target

str. buy

+804%

Previous close

$85.18

 
Intrinsic value

$770.14

 
Up/down potential

+804%

 
Rating

str. buy

We calculate the intrinsic value of ADI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 31.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -0.41
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  3,421
  5,474
  8,457
  12,647
  18,350
  25,889
  35,592
  47,775
  62,731
  80,720
  101,956
  126,606
  154,788
  186,572
  221,984
  261,014
  303,622
  349,747
  399,314
  452,244
  508,457
  567,879
  630,448
  696,117
  764,856
  836,654
  911,521
  989,489
  1,070,610
  1,154,957
  1,242,625
Variable operating expenses, $m
 
  4,048
  6,163
  9,134
  13,177
  18,521
  25,400
  34,037
  44,640
  57,392
  72,447
  89,754
  109,733
  132,265
  157,369
  185,038
  215,244
  247,943
  283,082
  320,605
  360,456
  402,581
  446,938
  493,492
  542,222
  593,121
  646,196
  701,469
  758,978
  818,773
  880,922
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,393
  4,048
  6,163
  9,134
  13,177
  18,521
  25,400
  34,037
  44,640
  57,392
  72,447
  89,754
  109,733
  132,265
  157,369
  185,038
  215,244
  247,943
  283,082
  320,605
  360,456
  402,581
  446,938
  493,492
  542,222
  593,121
  646,196
  701,469
  758,978
  818,773
  880,922
Operating income, $m
  1,028
  1,425
  2,294
  3,513
  5,173
  7,368
  10,192
  13,738
  18,092
  23,328
  29,509
  36,852
  45,056
  54,307
  64,615
  75,976
  88,378
  101,804
  116,232
  131,639
  148,001
  165,298
  183,510
  202,625
  222,634
  243,533
  265,325
  288,020
  311,632
  336,184
  361,702
EBITDA, $m
  1,238
  1,735
  2,681
  4,010
  5,818
  8,208
  11,284
  15,146
  19,888
  25,591
  32,324
  40,139
  49,073
  59,150
  70,377
  82,751
  96,259
  110,882
  126,597
  143,377
  161,199
  180,037
  199,874
  220,693
  242,486
  265,249
  288,984
  313,703
  339,421
  366,162
  393,956
Interest expense (income), $m
  42
  61
  119
  205
  325
  489
  705
  983
  1,332
  1,761
  2,277
  2,886
  3,593
  4,401
  5,312
  6,327
  7,446
  8,668
  9,991
  11,412
  12,930
  14,541
  16,245
  18,039
  19,922
  21,893
  23,952
  26,098
  28,334
  30,660
  33,078
Earnings before tax, $m
  957
  1,365
  2,174
  3,308
  4,848
  6,879
  9,487
  12,755
  16,760
  21,567
  27,232
  33,967
  41,463
  49,907
  59,303
  69,648
  80,931
  93,136
  106,241
  120,227
  135,072
  150,756
  167,265
  184,586
  202,712
  221,640
  241,373
  261,921
  283,298
  305,524
  328,624
Tax expense, $m
  95
  368
  587
  893
  1,309
  1,857
  2,562
  3,444
  4,525
  5,823
  7,353
  9,171
  11,195
  13,475
  16,012
  18,805
  21,852
  25,147
  28,685
  32,461
  36,469
  40,704
  45,162
  49,838
  54,732
  59,843
  65,171
  70,719
  76,491
  82,492
  88,728
Net income, $m
  862
  996
  1,587
  2,415
  3,539
  5,022
  6,926
  9,311
  12,235
  15,744
  19,880
  24,796
  30,268
  36,432
  43,291
  50,843
  59,080
  67,989
  77,556
  87,766
  98,602
  110,052
  122,104
  134,748
  147,979
  161,797
  176,202
  191,203
  206,808
  223,033
  239,895

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4,056
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  7,970
  6,263
  9,676
  14,470
  20,996
  29,622
  40,723
  54,662
  71,775
  92,357
  116,655
  144,859
  177,103
  213,469
  253,986
  298,643
  347,393
  400,168
  456,881
  517,442
  581,758
  649,747
  721,336
  796,472
  875,121
  957,270
  1,042,931
  1,132,139
  1,224,954
  1,321,461
  1,421,767
Adjusted assets (=assets-cash), $m
  3,914
  6,263
  9,676
  14,470
  20,996
  29,622
  40,723
  54,662
  71,775
  92,357
  116,655
  144,859
  177,103
  213,469
  253,986
  298,643
  347,393
  400,168
  456,881
  517,442
  581,758
  649,747
  721,336
  796,472
  875,121
  957,270
  1,042,931
  1,132,139
  1,224,954
  1,321,461
  1,421,767
Revenue / Adjusted assets
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
  0.874
Average production assets, $m
  1,207
  1,932
  2,985
  4,464
  6,478
  9,139
  12,564
  16,865
  22,144
  28,494
  35,991
  44,692
  54,640
  65,860
  78,360
  92,138
  107,178
  123,461
  140,958
  159,642
  179,485
  200,461
  222,548
  245,729
  269,994
  295,339
  321,767
  349,290
  377,925
  407,700
  438,647
Working capital, $m
  4,192
  219
  338
  506
  734
  1,036
  1,424
  1,911
  2,509
  3,229
  4,078
  5,064
  6,192
  7,463
  8,879
  10,441
  12,145
  13,990
  15,973
  18,090
  20,338
  22,715
  25,218
  27,845
  30,594
  33,466
  36,461
  39,580
  42,824
  46,198
  49,705
Total debt, $m
  1,732
  3,412
  5,856
  9,289
  13,961
  20,137
  28,086
  38,066
  50,319
  65,056
  82,453
  102,647
  125,734
  151,772
  180,782
  212,756
  247,662
  285,448
  326,055
  369,416
  415,467
  464,147
  515,405
  569,202
  625,515
  684,333
  745,666
  809,539
  875,995
  945,094
  1,016,913
Total liabilities, $m
  2,805
  4,484
  6,928
  10,361
  15,033
  21,209
  29,158
  39,138
  51,391
  66,128
  83,525
  103,719
  126,806
  152,844
  181,854
  213,828
  248,734
  286,520
  327,127
  370,488
  416,539
  465,219
  516,477
  570,274
  626,587
  685,405
  746,738
  810,611
  877,067
  946,166
  1,017,985
Total equity, $m
  5,166
  1,779
  2,748
  4,110
  5,963
  8,413
  11,565
  15,524
  20,384
  26,229
  33,130
  41,140
  50,297
  60,625
  72,132
  84,815
  98,660
  113,648
  129,754
  146,954
  165,219
  184,528
  204,859
  226,198
  248,534
  271,865
  296,192
  321,527
  347,887
  375,295
  403,782
Total liabilities and equity, $m
  7,971
  6,263
  9,676
  14,471
  20,996
  29,622
  40,723
  54,662
  71,775
  92,357
  116,655
  144,859
  177,103
  213,469
  253,986
  298,643
  347,394
  400,168
  456,881
  517,442
  581,758
  649,747
  721,336
  796,472
  875,121
  957,270
  1,042,930
  1,132,138
  1,224,954
  1,321,461
  1,421,767
Debt-to-equity ratio
  0.335
  1.920
  2.130
  2.260
  2.340
  2.390
  2.430
  2.450
  2.470
  2.480
  2.490
  2.500
  2.500
  2.500
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
  2.520
  2.520
  2.520
  2.520
  2.520
  2.520
  2.520
  2.520
  2.520
  2.520
Adjusted equity ratio
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  862
  996
  1,587
  2,415
  3,539
  5,022
  6,926
  9,311
  12,235
  15,744
  19,880
  24,796
  30,268
  36,432
  43,291
  50,843
  59,080
  67,989
  77,556
  87,766
  98,602
  110,052
  122,104
  134,748
  147,979
  161,797
  176,202
  191,203
  206,808
  223,033
  239,895
Depreciation, amort., depletion, $m
  210
  310
  387
  496
  644
  840
  1,092
  1,408
  1,796
  2,263
  2,814
  3,286
  4,018
  4,843
  5,762
  6,775
  7,881
  9,078
  10,365
  11,738
  13,197
  14,740
  16,364
  18,068
  19,853
  21,716
  23,659
  25,683
  27,789
  29,978
  32,253
Funds from operations, $m
  1,401
  1,306
  1,975
  2,911
  4,183
  5,862
  8,018
  10,719
  14,031
  18,007
  22,694
  28,082
  34,286
  41,274
  49,053
  57,618
  66,961
  77,067
  87,921
  99,504
  111,800
  124,792
  138,467
  152,816
  167,832
  183,513
  199,862
  216,886
  234,596
  253,011
  272,149
Change in working capital, $m
  120
  82
  119
  168
  228
  302
  388
  487
  598
  720
  849
  986
  1,127
  1,271
  1,416
  1,561
  1,704
  1,845
  1,983
  2,117
  2,249
  2,377
  2,503
  2,627
  2,750
  2,872
  2,995
  3,119
  3,245
  3,374
  3,507
Cash from operations, $m
  1,281
  1,224
  1,855
  2,744
  3,955
  5,560
  7,629
  10,232
  13,432
  17,287
  21,845
  27,096
  33,158
  40,003
  47,636
  56,057
  65,256
  75,222
  85,938
  97,387
  109,551
  122,415
  135,965
  150,189
  165,082
  180,641
  196,867
  213,767
  231,352
  249,637
  268,642
Maintenance CAPEX, $m
  0
  -89
  -142
  -220
  -328
  -476
  -672
  -924
  -1,240
  -1,628
  -2,095
  -2,646
  -3,286
  -4,018
  -4,843
  -5,762
  -6,775
  -7,881
  -9,078
  -10,365
  -11,738
  -13,197
  -14,740
  -16,364
  -18,068
  -19,853
  -21,716
  -23,659
  -25,683
  -27,789
  -29,978
New CAPEX, $m
  -127
  -726
  -1,053
  -1,479
  -2,013
  -2,661
  -3,425
  -4,301
  -5,280
  -6,350
  -7,496
  -8,702
  -9,948
  -11,220
  -12,500
  -13,778
  -15,041
  -16,282
  -17,497
  -18,684
  -19,843
  -20,976
  -22,087
  -23,181
  -24,265
  -25,345
  -26,428
  -27,523
  -28,636
  -29,775
  -30,947
Cash from investing activities, $m
  -1,218
  -815
  -1,195
  -1,699
  -2,341
  -3,137
  -4,097
  -5,225
  -6,520
  -7,978
  -9,591
  -11,348
  -13,234
  -15,238
  -17,343
  -19,540
  -21,816
  -24,163
  -26,575
  -29,049
  -31,581
  -34,173
  -36,827
  -39,545
  -42,333
  -45,198
  -48,144
  -51,182
  -54,319
  -57,564
  -60,925
Free cash flow, $m
  63
  410
  660
  1,045
  1,614
  2,423
  3,532
  5,008
  6,913
  9,309
  12,253
  15,748
  19,924
  24,766
  30,293
  36,518
  43,441
  51,059
  59,363
  68,338
  77,970
  88,242
  99,138
  110,644
  122,749
  135,444
  148,723
  162,585
  177,033
  192,074
  207,718
Issuance/(repayment) of debt, $m
  824
  1,680
  2,444
  3,433
  4,672
  6,176
  7,949
  9,980
  12,253
  14,737
  17,397
  20,194
  23,087
  26,038
  29,010
  31,974
  34,905
  37,787
  40,607
  43,361
  46,051
  48,680
  51,258
  53,797
  56,312
  58,819
  61,333
  63,873
  66,456
  69,099
  71,819
Issuance/(repurchase) of shares, $m
  -309
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  490
  1,680
  2,444
  3,433
  4,672
  6,176
  7,949
  9,980
  12,253
  14,737
  17,397
  20,194
  23,087
  26,038
  29,010
  31,974
  34,905
  37,787
  40,607
  43,361
  46,051
  48,680
  51,258
  53,797
  56,312
  58,819
  61,333
  63,873
  66,456
  69,099
  71,819
Total cash flow (excl. dividends), $m
  550
  2,090
  3,104
  4,478
  6,286
  8,599
  11,481
  14,988
  19,165
  24,046
  29,650
  35,942
  43,011
  50,804
  59,304
  68,492
  78,346
  88,846
  99,970
  111,699
  124,020
  136,921
  150,396
  164,442
  179,062
  194,262
  210,056
  226,458
  243,489
  261,172
  279,537
Retained Cash Flow (-), $m
  -93
  -669
  -969
  -1,362
  -1,853
  -2,450
  -3,153
  -3,959
  -4,860
  -5,845
  -6,900
  -8,010
  -9,158
  -10,328
  -11,507
  -12,682
  -13,845
  -14,988
  -16,107
  -17,199
  -18,266
  -19,309
  -20,331
  -21,339
  -22,336
  -23,330
  -24,328
  -25,335
  -26,360
  -27,408
  -28,487
Prev. year cash balance distribution, $m
 
  4,056
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,477
  2,135
  3,116
  4,433
  6,149
  8,328
  11,029
  14,305
  18,201
  22,750
  27,932
  33,854
  40,476
  47,797
  55,809
  64,501
  73,858
  83,863
  94,500
  105,754
  117,613
  130,065
  143,103
  156,725
  170,932
  185,728
  201,123
  217,129
  233,765
  251,050
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5,251
  1,954
  2,712
  3,650
  4,766
  6,044
  7,451
  8,941
  10,455
  11,927
  13,265
  14,447
  15,390
  16,046
  16,385
  16,391
  16,070
  15,444
  14,550
  13,438
  12,165
  10,792
  9,379
  7,982
  6,649
  5,419
  4,317
  3,359
  2,552
  1,890
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Analog Devices, Inc. (Analog Devices) designs, manufactures and markets a portfolio of solutions that leverage high-performance analog, mixed-signal and digital signal processing technology, including integrated circuits (ICs), algorithms, software and subsystems. Its products include Analog Products, Converters, Amplifiers/Radio Frequency, Other Analog, Power Management and Reference, and Digital Signal Processing Products. The Company is a supplier of data converter products. The Company is a supplier of high-performance amplifiers. Its analog product line also includes products of high performance radio frequency (RF) ICs. The Company's DSPs are used for high-speed numeric calculations. The Company offers its products for applications in various end markets, such as industrial, automotive, consumer and communications. The Company operates in the United States, Rest of North/South America, Europe, Japan and China.

FINANCIAL RATIOS  of  Analog Devices (ADI)

Valuation Ratios
P/E Ratio 30.5
Price to Sales 7.7
Price to Book 5.1
Price to Tangible Book
Price to Cash Flow 20.5
Price to Free Cash Flow 22.7
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -17.5%
Cap. Spend. - 3 Yr. Gr. Rate 0.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 33.5%
Total Debt to Equity 33.5%
Interest Coverage 24
Management Effectiveness
Return On Assets 12%
Ret/ On Assets - 3 Yr. Avg. 10.7%
Return On Total Capital 13.4%
Ret/ On T. Cap. - 3 Yr. Avg. 12.2%
Return On Equity 16.8%
Return On Equity - 3 Yr. Avg. 14.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 65.1%
Gross Margin - 3 Yr. Avg. 64.9%
EBITDA Margin 35.3%
EBITDA Margin - 3 Yr. Avg. 32.5%
Operating Margin 30%
Oper. Margin - 3 Yr. Avg. 26.8%
Pre-Tax Margin 28%
Pre-Tax Margin - 3 Yr. Avg. 25.7%
Net Profit Margin 25.2%
Net Profit Margin - 3 Yr. Avg. 22.5%
Effective Tax Rate 9.9%
Eff/ Tax Rate - 3 Yr. Avg. 12.5%
Payout Ratio 59.5%

ADI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADI stock intrinsic value calculation we used $3421 million for the last fiscal year's total revenue generated by Analog Devices. The default revenue input number comes from 2016 income statement of Analog Devices. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ADI stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ADI is calculated based on our internal credit rating of Analog Devices, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Analog Devices.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ADI stock the variable cost ratio is equal to 75.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ADI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Analog Devices.

Corporate tax rate of 27% is the nominal tax rate for Analog Devices. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ADI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ADI are equal to 35.3%.

Life of production assets of 13.6 years is the average useful life of capital assets used in Analog Devices operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ADI is equal to 4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $5166 million for Analog Devices - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 367.705 million for Analog Devices is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Analog Devices at the current share price and the inputted number of shares is $31.3 billion.

Management's discussion and analysis

Results of Operations

Overview
 
Fiscal Year
 
2016 over 2015
 
2015 over 2014
 
2016
 
2015
 
2014
 
  $ Change
 
% Change
 
  $ Change
 
% Change
Revenue
$
3,421,409
   
$
3,435,092
   
$
2,864,773
   
$
(13,683
)
 
 %
 
$
570,319
   
20
%
Gross Margin %
65.1
%
 
65.8
%
 
63.9
%
               
Net income
$
861,664
   
$
696,878
   
$
629,320
   
$
164,786
   
24
 %
 
$
67,558
   
11
%
Net income as a % of Revenue
25.2
%
 
20.3
%
 
22.0
%
               
Diluted EPS
$
2.76
   
$
2.20
   
$
1.98
   
$
0.56
   
25
 %
 
$
0.22
   
11
%
Proposed Acquisition of Linear Technology Corporation
On July 26, 2016, we entered into a definitive agreement (the Merger Agreement) to acquire Linear Technology Corporation (Linear), an independent manufacturer of high performance linear integrated circuits. Under the terms of the Merger Agreement, Linear stockholders will receive, for each outstanding share of Linear common stock, $46.00 in cash and 0.2321 of a share of our common stock at the closing. Based on the number of outstanding shares of Linear common stock as of July 26, 2016 and our 5-day volume weighted average price as of July 21, 2016, the value of the total consideration to be paid by us is estimated to be approximately $14.8 billion. On October 18, 2016, Linear stockholders approved the Merger Agreement. As of October 29, 2016 we had received antitrust clearance in the United States and Germany. Subsequently, we have also received antitrust clearances in Japan and Israel. We currently expect the transaction to be completed by the end of the second quarter of our fiscal year ended October 28, 2017 (fiscal 2017), subject to receipt of the remaining required regulatory clearances and the satisfaction or waiver of the other conditions contained in the Merger Agreement.
We intend to fund the acquisition with the issuance of approximately 58.0 million new shares of our common stock and approximately $11.6 billion of new short- and long-term indebtedness. The financing is supported by fully underwritten bridge financing commitments and is expected to consist of term loans and bonds. See Note 6, Acquisitions and Note 16, Debt, of the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information.
Acquisition of Hittite Microwave Corporation (Hittite)
On July 22, 2014, we completed the acquisition of Hittite, a company that designed and developed high performance integrated circuits, modules, subsystems and instrumentation for radio frequency, microwave and millimeterwave applications. The total consideration paid to acquire Hittite was approximately $2.4 billion, financed through a combination of existing cash on hand and a 90-day term loan facility of $2.0 billion. The acquisition of Hittite is referred to as the Hittite Acquisition. See Note 6, Acquisitions, of the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on From 10-K for further discussion related to the Hittite Acquisition.
Revenue Trends by End Market
The following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the “ship to” customer information and the end customer product or application into which our product will be incorporated. As data systems for capturing and tracking this data evolve and improve, the categorization of products by end market can vary over time. When this occurs, we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.
Automotive end market revenue increased year-over-year in fiscal 2016 primarily as a result of increased demand for our powertrain, advanced driver assistance systems, and infotainment products. The year-over-year decrease in the consumer end market in fiscal 2016 was primarily the result of lower demand for products sold into portable consumer applications.
The year-over-year increase in the industrial and communications end markets revenue in fiscal 2015 was the result of the Hittite Acquisition. Consumer end market revenue increased in fiscal 2015 as compared to fiscal 2014 as a result of increased demand for products sold into the portable sector of this end market.

[Source: Form 10-K dated 2016-11-22]

RELATED COMPANIES Price Int.Val. Rating
TXN Texas Instrume 98.86 77.16  hold
MXIM Maxim Integrat 51.19 10.35  str.sell
NXPI NXP Semiconduc 116.06 81.92  sell
MCHP Microchip Tech 86.40 88.04  hold
CRUS Cirrus Logic 49.79 225.02  str.buy
SWKS Skyworks Solut 95.86 60.46  sell
SLAB Silicon Labora 88.75 69.20  sell
SMTC Semtech 34.50 76.75  str.buy

COMPANY NEWS

▶ GOP Senate Majority Shrinks; Apple Is Carving New Base: S&P 500 Futures   [Dec-13-17 07:01AM  Investor's Business Daily]
▶ Chips That Stay Crisp: Nvidia, Monolithic Look Like Buys   [Dec-08-17 03:27PM  Barrons.com]
▶ Analog Devices and the 'Renaissance' of Analog Chips   [Nov-22-17 10:28AM  Barrons.com]
▶ Analog Devices Posts Beat-And-Raise Quarterly Results   [09:26AM  Investor's Business Daily]
▶ Analog Devices beats Street 4Q forecasts   [08:17AM  Associated Press]
▶ Will Apple Suppliers Join iPhone X Rally?   [11:05AM  Investopedia]
▶ Earnings Season Watch List: Analog Devices   [03:00AM  Investor's Business Daily]
▶ 1 Big Reason to Buy Analog Devices   [Oct-29-17 09:49AM  Motley Fool]
▶ Analog Devices Could Stall in Its Uptrend   [Oct-25-17 10:22AM  TheStreet.com]
▶ Top Analog Chip Stocks Get Price-Target Hikes On Strong Fundamentals   [Oct-19-17 04:37PM  Investor's Business Daily]
▶ 3 Semiconductor Stocks for the Electric Car Boom   [Oct-06-17 09:44AM  Barrons.com]
▶ What makes a good, sustainable rally   [Sep-27-17 07:05PM  CNBC Videos]
▶ 3 Reasons These Five Stocks Will Outperform the S&P   [Sep-22-17 06:00AM  Investopedia]
▶ Analog Devices Sees IBD RS Rating Rise To 72   [03:00AM  Investor's Business Daily]
▶ [$$] Three Chip Names to Buy, Two to Sell   [Sep-19-17 03:36PM  Barrons.com]
▶ Breakout Watch: Top Chip Stock Nears Buy Zone, Gets Upgrade   [Sep-18-17 10:42AM  Investor's Business Daily]
▶ Analog Devices Sees IBD RS Rating Rise To 73   [03:00AM  Investor's Business Daily]
▶ [$$] Wall Street's Real Earnings Surprises   [Sep-15-17 11:51PM  Barrons.com]
▶ 3 Reasons Analog Devices Is Built for Growth   [Sep-12-17 10:09PM  Motley Fool]
▶ Watch These 5 Hot Apple Chip Stocks Before The Big iPhone Reveal   [Sep-11-17 04:07PM  Investor's Business Daily]
Financial statements of ADI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.