Intrinsic value of Analog Devices - ADI

Previous Close

$80.06

  Intrinsic Value

$157.13

stock screener

  Rating & Target

str. buy

+96%

  Value-price divergence*

+90%

Previous close

$80.06

 
Intrinsic value

$157.13

 
Up/down potential

+96%

 
Rating

str. buy

 
Value-price divergence*

+90%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 24.7

 

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
  28.00
  25.70
  23.63
  21.77
  20.09
  18.58
  17.22
  16.00
  14.90
  13.91
  13.02
  12.22
  11.50
  10.85
  10.26
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.26
  7.04
  6.83
  6.65
  6.49
  6.34
  6.20
  6.08
Revenue, $m
  3,421
  4,379
  5,504
  6,805
  8,286
  9,951
  11,800
  13,832
  16,045
  18,436
  21,001
  23,735
  26,635
  29,697
  32,918
  36,296
  39,829
  43,518
  47,364
  51,367
  55,531
  59,860
  64,360
  69,036
  73,895
  78,945
  84,196
  89,657
  95,339
  101,253
  107,413
Variable operating expenses, $m
 
  3,272
  4,070
  4,992
  6,042
  7,222
  8,533
  9,974
  11,543
  13,238
  15,056
  16,826
  18,882
  21,053
  23,336
  25,731
  28,236
  30,851
  33,577
  36,415
  39,367
  42,436
  45,626
  48,941
  52,386
  55,966
  59,688
  63,560
  67,588
  71,781
  76,147
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
  3,272
  4,070
  4,992
  6,042
  7,222
  8,533
  9,974
  11,543
  13,238
  15,056
  16,826
  18,882
  21,053
  23,336
  25,731
  28,236
  30,851
  33,577
  36,415
  39,367
  42,436
  45,626
  48,941
  52,386
  55,966
  59,688
  63,560
  67,588
  71,781
  76,147
Operating income, $m
  1,028
  1,107
  1,434
  1,813
  2,244
  2,729
  3,267
  3,858
  4,503
  5,199
  5,945
  6,909
  7,753
  8,644
  9,582
  10,565
  11,594
  12,667
  13,787
  14,952
  16,164
  17,424
  18,734
  20,095
  21,509
  22,979
  24,508
  26,097
  27,751
  29,473
  31,266
EBITDA, $m
  1,238
  1,388
  1,745
  2,157
  2,627
  3,155
  3,741
  4,385
  5,087
  5,845
  6,658
  7,525
  8,444
  9,415
  10,436
  11,507
  12,627
  13,797
  15,016
  16,285
  17,605
  18,978
  20,404
  21,887
  23,427
  25,028
  26,693
  28,424
  30,226
  32,101
  34,054
Interest expense (income), $m
  42
  61
  88
  120
  158
  200
  248
  301
  359
  423
  491
  565
  643
  726
  814
  906
  1,003
  1,105
  1,210
  1,321
  1,435
  1,555
  1,679
  1,808
  1,942
  2,081
  2,226
  2,377
  2,533
  2,696
  2,866
Earnings before tax, $m
  957
  1,046
  1,346
  1,693
  2,086
  2,529
  3,019
  3,558
  4,143
  4,776
  5,454
  6,344
  7,110
  7,918
  8,768
  9,659
  10,590
  11,563
  12,576
  13,631
  14,729
  15,869
  17,055
  18,287
  19,567
  20,898
  22,282
  23,721
  25,218
  26,777
  28,400
Tax expense, $m
  95
  282
  363
  457
  563
  683
  815
  961
  1,119
  1,290
  1,473
  1,713
  1,920
  2,138
  2,367
  2,608
  2,859
  3,122
  3,396
  3,680
  3,977
  4,285
  4,605
  4,937
  5,283
  5,642
  6,016
  6,405
  6,809
  7,230
  7,668
Net income, $m
  862
  764
  983
  1,236
  1,523
  1,846
  2,204
  2,597
  3,025
  3,486
  3,981
  4,631
  5,190
  5,780
  6,400
  7,051
  7,731
  8,441
  9,181
  9,951
  10,752
  11,585
  12,450
  13,350
  14,284
  15,256
  16,266
  17,316
  18,409
  19,547
  20,732

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
  5,010
  6,298
  7,786
  9,481
  11,385
  13,501
  15,826
  18,359
  21,094
  24,028
  27,157
  30,475
  33,978
  37,664
  41,528
  45,571
  49,792
  54,192
  58,772
  63,537
  68,490
  73,638
  78,988
  84,548
  90,326
  96,334
  102,582
  109,083
  115,851
  122,898
Adjusted assets (=assets-cash), $m
  3,914
  5,010
  6,298
  7,786
  9,481
  11,385
  13,501
  15,826
  18,359
  21,094
  24,028
  27,157
  30,475
  33,978
  37,664
  41,528
  45,571
  49,792
  54,192
  58,772
  63,537
  68,490
  73,638
  78,988
  84,548
  90,326
  96,334
  102,582
  109,083
  115,851
  122,898
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
  1,546
  1,943
  2,402
  2,925
  3,513
  4,165
  4,883
  5,664
  6,508
  7,413
  8,378
  9,402
  10,483
  11,620
  12,812
  14,060
  15,362
  16,719
  18,132
  19,602
  21,131
  22,719
  24,370
  26,085
  27,868
  29,721
  31,649
  33,655
  35,742
  37,917
Working capital, $m
  4,192
  175
  220
  272
  331
  398
  472
  553
  642
  737
  840
  949
  1,065
  1,188
  1,317
  1,452
  1,593
  1,741
  1,895
  2,055
  2,221
  2,394
  2,574
  2,761
  2,956
  3,158
  3,368
  3,586
  3,814
  4,050
  4,297
Total debt, $m
  1,732
  2,515
  3,437
  4,503
  5,716
  7,080
  8,595
  10,260
  12,073
  14,031
  16,132
  18,372
  20,748
  23,256
  25,895
  28,662
  31,557
  34,579
  37,729
  41,009
  44,420
  47,967
  51,653
  55,484
  59,464
  63,602
  67,903
  72,377
  77,032
  81,877
  86,923
Total liabilities, $m
  2,805
  3,587
  4,509
  5,575
  6,788
  8,152
  9,667
  11,332
  13,145
  15,103
  17,204
  19,444
  21,820
  24,328
  26,967
  29,734
  32,629
  35,651
  38,801
  42,081
  45,492
  49,039
  52,725
  56,556
  60,536
  64,674
  68,975
  73,449
  78,104
  82,949
  87,995
Total equity, $m
  5,166
  1,423
  1,789
  2,211
  2,693
  3,233
  3,834
  4,495
  5,214
  5,991
  6,824
  7,713
  8,655
  9,650
  10,696
  11,794
  12,942
  14,141
  15,390
  16,691
  18,044
  19,451
  20,913
  22,433
  24,012
  25,653
  27,359
  29,133
  30,980
  32,902
  34,903
Total liabilities and equity, $m
  7,971
  5,010
  6,298
  7,786
  9,481
  11,385
  13,501
  15,827
  18,359
  21,094
  24,028
  27,157
  30,475
  33,978
  37,663
  41,528
  45,571
  49,792
  54,191
  58,772
  63,536
  68,490
  73,638
  78,989
  84,548
  90,327
  96,334
  102,582
  109,084
  115,851
  122,898
Debt-to-equity ratio
  0.335
  1.770
  1.920
  2.040
  2.120
  2.190
  2.240
  2.280
  2.320
  2.340
  2.360
  2.380
  2.400
  2.410
  2.420
  2.430
  2.440
  2.450
  2.450
  2.460
  2.460
  2.470
  2.470
  2.470
  2.480
  2.480
  2.480
  2.480
  2.490
  2.490
  2.490
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
  764
  983
  1,236
  1,523
  1,846
  2,204
  2,597
  3,025
  3,486
  3,981
  4,631
  5,190
  5,780
  6,400
  7,051
  7,731
  8,441
  9,181
  9,951
  10,752
  11,585
  12,450
  13,350
  14,284
  15,256
  16,266
  17,316
  18,409
  19,547
  20,732
Depreciation, amort., depletion, $m
  210
  282
  311
  345
  383
  426
  474
  527
  584
  646
  713
  616
  691
  771
  854
  942
  1,034
  1,130
  1,229
  1,333
  1,441
  1,554
  1,671
  1,792
  1,918
  2,049
  2,185
  2,327
  2,475
  2,628
  2,788
Funds from operations, $m
  1,401
  1,045
  1,294
  1,580
  1,906
  2,272
  2,678
  3,124
  3,609
  4,133
  4,694
  5,247
  5,882
  6,551
  7,255
  7,993
  8,765
  9,570
  10,410
  11,284
  12,193
  13,138
  14,121
  15,141
  16,202
  17,305
  18,451
  19,643
  20,884
  22,175
  23,520
Change in working capital, $m
  120
  38
  45
  52
  59
  67
  74
  81
  89
  96
  103
  109
  116
  122
  129
  135
  141
  148
  154
  160
  167
  173
  180
  187
  194
  202
  210
  218
  227
  237
  246
Cash from operations, $m
  1,281
  1,007
  1,249
  1,528
  1,847
  2,205
  2,604
  3,043
  3,521
  4,037
  4,592
  5,138
  5,766
  6,428
  7,126
  7,858
  8,623
  9,423
  10,256
  11,124
  12,027
  12,965
  13,941
  14,954
  16,008
  17,103
  18,241
  19,425
  20,656
  21,939
  23,274
Maintenance CAPEX, $m
  0
  -89
  -114
  -143
  -177
  -215
  -258
  -306
  -359
  -416
  -479
  -545
  -616
  -691
  -771
  -854
  -942
  -1,034
  -1,130
  -1,229
  -1,333
  -1,441
  -1,554
  -1,671
  -1,792
  -1,918
  -2,049
  -2,185
  -2,327
  -2,475
  -2,628
New CAPEX, $m
  -127
  -339
  -397
  -459
  -523
  -588
  -653
  -717
  -781
  -844
  -905
  -965
  -1,024
  -1,081
  -1,137
  -1,192
  -1,247
  -1,302
  -1,357
  -1,413
  -1,470
  -1,528
  -1,588
  -1,651
  -1,715
  -1,783
  -1,854
  -1,928
  -2,006
  -2,088
  -2,174
Cash from investing activities, $m
  -1,218
  -428
  -511
  -602
  -700
  -803
  -911
  -1,023
  -1,140
  -1,260
  -1,384
  -1,510
  -1,640
  -1,772
  -1,908
  -2,046
  -2,189
  -2,336
  -2,487
  -2,642
  -2,803
  -2,969
  -3,142
  -3,322
  -3,507
  -3,701
  -3,903
  -4,113
  -4,333
  -4,563
  -4,802
Free cash flow, $m
  63
  579
  738
  926
  1,147
  1,403
  1,693
  2,019
  2,380
  2,777
  3,208
  3,628
  4,126
  4,656
  5,218
  5,811
  6,434
  7,087
  7,769
  8,481
  9,223
  9,996
  10,799
  11,633
  12,501
  13,402
  14,338
  15,312
  16,324
  17,376
  18,471
Issuance/(repayment) of debt, $m
  824
  783
  922
  1,066
  1,213
  1,364
  1,515
  1,665
  1,813
  1,959
  2,101
  2,240
  2,376
  2,508
  2,639
  2,767
  2,895
  3,022
  3,150
  3,280
  3,411
  3,547
  3,686
  3,830
  3,981
  4,137
  4,302
  4,474
  4,655
  4,845
  5,046
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
  783
  922
  1,066
  1,213
  1,364
  1,515
  1,665
  1,813
  1,959
  2,101
  2,240
  2,376
  2,508
  2,639
  2,767
  2,895
  3,022
  3,150
  3,280
  3,411
  3,547
  3,686
  3,830
  3,981
  4,137
  4,302
  4,474
  4,655
  4,845
  5,046
Total cash flow (excl. dividends), $m
  550
  1,362
  1,660
  1,992
  2,361
  2,766
  3,208
  3,684
  4,193
  4,735
  5,309
  5,868
  6,501
  7,165
  7,857
  8,578
  9,329
  10,109
  10,919
  11,761
  12,635
  13,542
  14,485
  15,464
  16,481
  17,539
  18,640
  19,785
  20,978
  22,221
  23,517
Retained Cash Flow (-), $m
  -93
  -313
  -366
  -423
  -481
  -541
  -601
  -660
  -719
  -777
  -833
  -888
  -942
  -995
  -1,047
  -1,098
  -1,148
  -1,199
  -1,249
  -1,301
  -1,353
  -1,407
  -1,462
  -1,519
  -1,579
  -1,641
  -1,706
  -1,775
  -1,846
  -1,922
  -2,002
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
 
  5,105
  1,294
  1,569
  1,879
  2,226
  2,607
  3,023
  3,474
  3,959
  4,476
  4,979
  5,559
  6,170
  6,810
  7,481
  8,181
  8,910
  9,670
  10,460
  11,282
  12,136
  13,023
  13,944
  14,902
  15,898
  16,934
  18,011
  19,132
  20,300
  21,516
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
 
  4,895
  1,184
  1,365
  1,548
  1,725
  1,892
  2,043
  2,171
  2,274
  2,346
  2,365
  2,372
  2,346
  2,286
  2,196
  2,079
  1,939
  1,781
  1,611
  1,434
  1,255
  1,081
  914
  759
  618
  494
  387
  296
  222
  162
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. designs, manufactures, and markets a portfolio of solutions that leverage analog, mixed-signal, and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems. It offers data converter products, which translate real-world analog signals into digital data, as well as translates digital data into analog signals; high-performance amplifiers to condition analog signals; and radio frequency ICs to support cellular infrastructure. The company also provides MEMS technology solutions, including accelerometers used to sense acceleration, gyroscopes to sense rotation, and inertial measurement units to sense multiple degrees of freedom. In addition, it offers isolators for various applications, such as universal serial bus isolation in patient monitors; and smart metering and satellite applications. Further, the company provides power management and reference products; and digital signal processing products for high-speed numeric calculations. Its products are used in electronic equipment, including industrial process control systems, medical imaging equipment, factory automation systems, patient monitoring devices, instrumentation and measurement systems, wireless infrastructure equipment, energy management systems, networking equipment, aerospace and defense electronics, optical systems, automobiles, and portable electronic devices. The company serves clients in industrial, automotive, consumer, and communications markets through a direct sales force, third-party distributors, and independent sales representatives in the United States, rest of North/South America, Europe, Japan, China, and rest of Asia, as well as through its Website. It has a collaboration with TriLumina Corp. to provide illuminator modules for automotive flash LiDAR systems. Analog Devices, Inc. was founded in 1965 and is headquartered in Norwood, Massachusetts.

FINANCIAL RATIOS  of  Analog Devices (ADI)

Valuation Ratios
P/E Ratio 28.6
Price to Sales 7.2
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow 19.3
Price to Free Cash Flow 21.4
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 28% 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 307.904 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 $24.7 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]

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COMPANY NEWS

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Stock chart of ADI 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.

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