Intrinsic value of Analog Devices - ADI

Previous Close

$89.00

  Intrinsic Value

$383.26

stock screener

  Rating & Target

str. buy

+331%

  Value-price divergence*

+693%

Previous close

$89.00

 
Intrinsic value

$383.26

 
Up/down potential

+331%

 
Rating

str. buy

 
Value-price divergence*

+693%

*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 32.5

 

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
  47.40
  43.16
  39.34
  35.91
  32.82
  30.04
  27.53
  25.28
  23.25
  21.43
  19.78
  18.31
  16.98
  15.78
  14.70
  13.73
  12.86
  12.07
  11.36
  10.73
  10.15
  9.64
  9.18
  8.76
  8.38
  8.04
  7.74
  7.47
  7.22
  7.00
Revenue, $m
  3,421
  5,043
  7,219
  10,059
  13,671
  18,158
  23,612
  30,113
  37,726
  46,498
  56,461
  67,631
  80,011
  93,593
  108,360
  124,288
  141,353
  159,526
  178,783
  199,100
  220,459
  242,846
  266,255
  290,685
  316,143
  342,642
  370,204
  398,856
  428,632
  459,575
  491,732
Variable operating expenses, $m
 
  3,743
  5,286
  7,299
  9,860
  13,041
  16,907
  21,516
  26,913
  33,131
  40,194
  47,945
  56,722
  66,350
  76,819
  88,111
  100,208
  113,092
  126,743
  141,146
  156,288
  172,159
  188,754
  206,072
  224,120
  242,906
  262,445
  282,757
  303,866
  325,803
  348,599
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
  3,743
  5,286
  7,299
  9,860
  13,041
  16,907
  21,516
  26,913
  33,131
  40,194
  47,945
  56,722
  66,350
  76,819
  88,111
  100,208
  113,092
  126,743
  141,146
  156,288
  172,159
  188,754
  206,072
  224,120
  242,906
  262,445
  282,757
  303,866
  325,803
  348,599
Operating income, $m
  1,028
  1,300
  1,933
  2,760
  3,812
  5,118
  6,705
  8,597
  10,813
  13,367
  16,267
  19,686
  23,290
  27,243
  31,541
  36,178
  41,145
  46,435
  52,040
  57,954
  64,171
  70,687
  77,501
  84,612
  92,023
  99,736
  107,759
  116,099
  124,766
  133,773
  143,133
EBITDA, $m
  1,238
  1,599
  2,289
  3,189
  4,334
  5,757
  7,486
  9,547
  11,960
  14,741
  17,900
  21,441
  25,366
  29,672
  34,354
  39,404
  44,814
  50,575
  56,681
  63,122
  69,893
  76,991
  84,412
  92,157
  100,228
  108,630
  117,368
  126,451
  135,892
  145,702
  155,896
Interest expense (income), $m
  42
  61
  107
  169
  251
  354
  483
  640
  826
  1,044
  1,296
  1,581
  1,902
  2,257
  2,646
  3,069
  3,526
  4,015
  4,537
  5,089
  5,671
  6,284
  6,926
  7,597
  8,297
  9,027
  9,787
  10,577
  11,399
  12,253
  13,140
Earnings before tax, $m
  957
  1,239
  1,826
  2,591
  3,561
  4,763
  6,222
  7,958
  9,987
  12,322
  14,971
  18,105
  21,388
  24,986
  28,895
  33,108
  37,619
  42,419
  47,503
  52,865
  58,500
  64,404
  70,576
  77,016
  83,725
  90,709
  97,972
  105,521
  113,367
  121,520
  129,993
Tax expense, $m
  95
  335
  493
  699
  961
  1,286
  1,680
  2,149
  2,697
  3,327
  4,042
  4,888
  5,775
  6,746
  7,802
  8,939
  10,157
  11,453
  12,826
  14,274
  15,795
  17,389
  19,055
  20,794
  22,606
  24,491
  26,452
  28,491
  30,609
  32,810
  35,098
Net income, $m
  862
  905
  1,333
  1,891
  2,599
  3,477
  4,542
  5,809
  7,291
  8,995
  10,929
  13,216
  15,613
  18,240
  21,094
  24,169
  27,462
  30,966
  34,678
  38,592
  42,705
  47,015
  51,520
  56,221
  61,119
  66,217
  71,519
  77,031
  82,758
  88,710
  94,895

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
  5,770
  8,260
  11,509
  15,642
  20,776
  27,016
  34,455
  43,165
  53,201
  64,600
  77,381
  91,546
  107,086
  123,981
  142,206
  161,731
  182,525
  204,557
  227,803
  252,241
  277,856
  304,639
  332,591
  361,719
  392,039
  423,574
  456,357
  490,426
  525,830
  562,623
Adjusted assets (=assets-cash), $m
  3,914
  5,770
  8,260
  11,509
  15,642
  20,776
  27,016
  34,455
  43,165
  53,201
  64,600
  77,381
  91,546
  107,086
  123,981
  142,206
  161,731
  182,525
  204,557
  227,803
  252,241
  277,856
  304,639
  332,591
  361,719
  392,039
  423,574
  456,357
  490,426
  525,830
  562,623
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
  1,780
  2,548
  3,551
  4,826
  6,410
  8,335
  10,630
  13,317
  16,414
  19,931
  23,874
  28,244
  33,038
  38,251
  43,874
  49,898
  56,313
  63,110
  70,282
  77,822
  85,725
  93,988
  102,612
  111,598
  120,953
  130,682
  140,796
  151,307
  162,230
  173,581
Working capital, $m
  4,192
  202
  289
  402
  547
  726
  944
  1,205
  1,509
  1,860
  2,258
  2,705
  3,200
  3,744
  4,334
  4,972
  5,654
  6,381
  7,151
  7,964
  8,818
  9,714
  10,650
  11,627
  12,646
  13,706
  14,808
  15,954
  17,145
  18,383
  19,669
Total debt, $m
  1,732
  3,059
  4,842
  7,169
  10,128
  13,803
  18,272
  23,598
  29,834
  37,020
  45,182
  54,333
  64,475
  75,602
  87,699
  100,748
  114,727
  129,616
  145,391
  162,035
  179,533
  197,873
  217,050
  237,063
  257,919
  279,628
  302,207
  325,679
  350,073
  375,422
  401,766
Total liabilities, $m
  2,805
  4,131
  5,914
  8,241
  11,200
  14,875
  19,344
  24,670
  30,906
  38,092
  46,254
  55,405
  65,547
  76,674
  88,771
  101,820
  115,799
  130,688
  146,463
  163,107
  180,605
  198,945
  218,122
  238,135
  258,991
  280,700
  303,279
  326,751
  351,145
  376,494
  402,838
Total equity, $m
  5,166
  1,639
  2,346
  3,269
  4,442
  5,900
  7,673
  9,785
  12,259
  15,109
  18,347
  21,976
  25,999
  30,412
  35,211
  40,387
  45,932
  51,837
  58,094
  64,696
  71,636
  78,911
  86,518
  94,456
  102,728
  111,339
  120,295
  129,605
  139,281
  149,336
  159,785
Total liabilities and equity, $m
  7,971
  5,770
  8,260
  11,510
  15,642
  20,775
  27,017
  34,455
  43,165
  53,201
  64,601
  77,381
  91,546
  107,086
  123,982
  142,207
  161,731
  182,525
  204,557
  227,803
  252,241
  277,856
  304,640
  332,591
  361,719
  392,039
  423,574
  456,356
  490,426
  525,830
  562,623
Debt-to-equity ratio
  0.335
  1.870
  2.060
  2.190
  2.280
  2.340
  2.380
  2.410
  2.430
  2.450
  2.460
  2.470
  2.480
  2.490
  2.490
  2.490
  2.500
  2.500
  2.500
  2.500
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
  2.510
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
  905
  1,333
  1,891
  2,599
  3,477
  4,542
  5,809
  7,291
  8,995
  10,929
  13,216
  15,613
  18,240
  21,094
  24,169
  27,462
  30,966
  34,678
  38,592
  42,705
  47,015
  51,520
  56,221
  61,119
  66,217
  71,519
  77,031
  82,758
  88,710
  94,895
Depreciation, amort., depletion, $m
  210
  299
  355
  429
  523
  639
  781
  950
  1,147
  1,375
  1,633
  1,755
  2,077
  2,429
  2,813
  3,226
  3,669
  4,141
  4,640
  5,168
  5,722
  6,303
  6,911
  7,545
  8,206
  8,894
  9,609
  10,353
  11,126
  11,929
  12,763
Funds from operations, $m
  1,401
  1,203
  1,688
  2,320
  3,122
  4,116
  5,323
  6,759
  8,438
  10,370
  12,562
  14,972
  17,690
  20,669
  23,906
  27,395
  31,131
  35,107
  39,318
  43,759
  48,427
  53,318
  58,431
  63,766
  69,325
  75,111
  81,128
  87,383
  93,884
  100,638
  107,658
Change in working capital, $m
  120
  65
  87
  114
  144
  179
  218
  260
  305
  351
  399
  447
  495
  543
  591
  637
  683
  727
  770
  813
  854
  895
  936
  977
  1,018
  1,060
  1,102
  1,146
  1,191
  1,238
  1,286
Cash from operations, $m
  1,281
  1,139
  1,601
  2,207
  2,978
  3,937
  5,105
  6,499
  8,133
  10,019
  12,164
  14,525
  17,195
  20,126
  23,315
  26,758
  30,448
  34,380
  38,548
  42,947
  47,573
  52,423
  57,495
  62,789
  68,307
  74,051
  80,026
  86,237
  92,693
  99,401
  106,372
Maintenance CAPEX, $m
  0
  -89
  -131
  -187
  -261
  -355
  -471
  -613
  -782
  -979
  -1,207
  -1,465
  -1,755
  -2,077
  -2,429
  -2,813
  -3,226
  -3,669
  -4,141
  -4,640
  -5,168
  -5,722
  -6,303
  -6,911
  -7,545
  -8,206
  -8,894
  -9,609
  -10,353
  -11,126
  -11,929
New CAPEX, $m
  -127
  -574
  -768
  -1,003
  -1,275
  -1,584
  -1,925
  -2,295
  -2,687
  -3,097
  -3,517
  -3,943
  -4,370
  -4,794
  -5,213
  -5,623
  -6,024
  -6,415
  -6,798
  -7,172
  -7,540
  -7,903
  -8,263
  -8,624
  -8,987
  -9,354
  -9,729
  -10,114
  -10,511
  -10,923
  -11,351
Cash from investing activities, $m
  -1,218
  -663
  -899
  -1,190
  -1,536
  -1,939
  -2,396
  -2,908
  -3,469
  -4,076
  -4,724
  -5,408
  -6,125
  -6,871
  -7,642
  -8,436
  -9,250
  -10,084
  -10,939
  -11,812
  -12,708
  -13,625
  -14,566
  -15,535
  -16,532
  -17,560
  -18,623
  -19,723
  -20,864
  -22,049
  -23,280
Free cash flow, $m
  63
  476
  702
  1,017
  1,441
  1,998
  2,708
  3,591
  4,665
  5,944
  7,440
  9,116
  11,069
  13,255
  15,674
  18,323
  21,198
  24,296
  27,610
  31,134
  34,865
  38,798
  42,928
  47,254
  51,775
  56,491
  61,403
  66,514
  71,829
  77,352
  83,092
Issuance/(repayment) of debt, $m
  824
  1,327
  1,783
  2,327
  2,959
  3,676
  4,468
  5,326
  6,236
  7,186
  8,162
  9,151
  10,142
  11,127
  12,097
  13,049
  13,980
  14,888
  15,775
  16,644
  17,497
  18,340
  19,177
  20,014
  20,856
  21,709
  22,579
  23,472
  24,394
  25,349
  26,344
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
  1,327
  1,783
  2,327
  2,959
  3,676
  4,468
  5,326
  6,236
  7,186
  8,162
  9,151
  10,142
  11,127
  12,097
  13,049
  13,980
  14,888
  15,775
  16,644
  17,497
  18,340
  19,177
  20,014
  20,856
  21,709
  22,579
  23,472
  24,394
  25,349
  26,344
Total cash flow (excl. dividends), $m
  550
  1,803
  2,485
  3,343
  4,401
  5,674
  7,176
  8,917
  10,901
  13,130
  15,602
  18,267
  21,211
  24,382
  27,771
  31,372
  35,178
  39,184
  43,385
  47,778
  52,363
  57,138
  62,105
  67,268
  72,631
  78,200
  83,982
  89,986
  96,222
  102,702
  109,436
Retained Cash Flow (-), $m
  -93
  -529
  -707
  -923
  -1,174
  -1,458
  -1,772
  -2,113
  -2,474
  -2,850
  -3,237
  -3,630
  -4,023
  -4,413
  -4,798
  -5,176
  -5,545
  -5,905
  -6,257
  -6,602
  -6,940
  -7,275
  -7,607
  -7,938
  -8,272
  -8,611
  -8,956
  -9,310
  -9,676
  -10,055
  -10,449
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
 
  5,331
  1,778
  2,420
  3,227
  4,216
  5,404
  6,804
  8,427
  10,279
  12,364
  14,638
  17,188
  19,968
  22,972
  26,196
  29,633
  33,278
  37,128
  41,177
  45,422
  49,863
  54,499
  59,330
  64,359
  69,589
  75,026
  80,676
  86,547
  92,647
  98,987
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
 
  5,111
  1,628
  2,106
  2,657
  3,268
  3,922
  4,597
  5,267
  5,905
  6,482
  6,951
  7,335
  7,592
  7,712
  7,691
  7,530
  7,241
  6,837
  6,340
  5,772
  5,158
  4,522
  3,889
  3,278
  2,707
  2,189
  1,732
  1,339
  1,011
  745
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 31.8
Price to Sales 8
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow 21.4
Price to Free Cash Flow 23.8
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 47.4% 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 365.582 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 $32.5 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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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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