Intrinsic value of Cavium - CAVM

Previous Close

$61.13

  Intrinsic Value

$41.90

stock screener

  Rating & Target

sell

-31%

  Value-price divergence*

+150%

Previous close

$61.13

 
Intrinsic value

$41.90

 
Up/down potential

-31%

 
Rating

sell

 
Value-price divergence*

+150%

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

We calculate the intrinsic value of CAVM 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 4.0

 

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, %
  46.00
  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
  603
  965
  1,491
  2,229
  3,234
  4,563
  6,274
  8,421
  11,057
  14,228
  17,971
  22,316
  27,284
  32,886
  39,128
  46,007
  53,518
  61,648
  70,385
  79,714
  89,623
  100,097
  111,125
  122,701
  134,817
  147,472
  160,669
  174,412
  188,710
  203,578
  219,030
Variable operating expenses, $m
 
  981
  1,503
  2,236
  3,233
  4,551
  6,248
  8,378
  10,993
  14,139
  17,852
  22,138
  27,066
  32,624
  38,816
  45,641
  53,091
  61,157
  69,824
  79,079
  88,909
  99,299
  110,240
  121,723
  133,743
  146,297
  159,389
  173,022
  187,207
  201,956
  217,285
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
  737
  981
  1,503
  2,236
  3,233
  4,551
  6,248
  8,378
  10,993
  14,139
  17,852
  22,138
  27,066
  32,624
  38,816
  45,641
  53,091
  61,157
  69,824
  79,079
  88,909
  99,299
  110,240
  121,723
  133,743
  146,297
  159,389
  173,022
  187,207
  201,956
  217,285
Operating income, $m
  -134
  -16
  -12
  -6
  2
  12
  26
  43
  64
  89
  119
  178
  217
  262
  312
  367
  426
  491
  561
  635
  714
  797
  885
  978
  1,074
  1,175
  1,280
  1,390
  1,503
  1,622
  1,745
EBITDA, $m
  -35
  89
  137
  205
  298
  421
  578
  776
  1,019
  1,311
  1,656
  2,057
  2,515
  3,031
  3,606
  4,240
  4,933
  5,682
  6,487
  7,347
  8,260
  9,226
  10,242
  11,309
  12,426
  13,592
  14,808
  16,075
  17,393
  18,763
  20,187
Interest expense (income), $m
  10
  25
  43
  70
  108
  159
  227
  314
  423
  558
  720
  911
  1,132
  1,386
  1,671
  1,990
  2,341
  2,724
  3,138
  3,584
  4,060
  4,565
  5,099
  5,662
  6,252
  6,870
  7,516
  8,189
  8,890
  9,619
  10,378
Earnings before tax, $m
  -146
  -41
  -55
  -76
  -106
  -147
  -201
  -271
  -359
  -469
  -600
  -733
  -915
  -1,124
  -1,360
  -1,623
  -1,914
  -2,232
  -2,578
  -2,949
  -3,346
  -3,768
  -4,214
  -4,684
  -5,178
  -5,696
  -6,236
  -6,800
  -7,387
  -7,998
  -8,633
Tax expense, $m
  1
  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
Net income, $m
  -147
  -41
  -55
  -76
  -106
  -147
  -201
  -271
  -359
  -469
  -600
  -733
  -915
  -1,124
  -1,360
  -1,623
  -1,914
  -2,232
  -2,578
  -2,949
  -3,346
  -3,768
  -4,214
  -4,684
  -5,178
  -5,696
  -6,236
  -6,800
  -7,387
  -7,998
  -8,633

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  221
  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
  1,651
  2,286
  3,532
  5,283
  7,665
  10,814
  14,866
  19,955
  26,202
  33,716
  42,586
  52,882
  64,653
  77,929
  92,720
  109,022
  126,819
  146,085
  166,789
  188,897
  212,376
  237,196
  263,330
  290,759
  319,471
  349,460
  380,731
  413,298
  447,181
  482,411
  519,029
Adjusted assets (=assets-cash), $m
  1,430
  2,286
  3,532
  5,283
  7,665
  10,814
  14,866
  19,955
  26,202
  33,716
  42,586
  52,882
  64,653
  77,929
  92,720
  109,022
  126,819
  146,085
  166,789
  188,897
  212,376
  237,196
  263,330
  290,759
  319,471
  349,460
  380,731
  413,298
  447,181
  482,411
  519,029
Revenue / Adjusted assets
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
  0.422
Average production assets, $m
  508
  812
  1,255
  1,877
  2,723
  3,842
  5,282
  7,090
  9,310
  11,980
  15,132
  18,790
  22,973
  27,690
  32,946
  38,738
  45,062
  51,907
  59,264
  67,120
  75,462
  84,281
  93,568
  103,314
  113,516
  124,172
  135,283
  146,855
  158,894
  171,412
  184,424
Working capital, $m
  321
  206
  319
  477
  692
  977
  1,343
  1,802
  2,366
  3,045
  3,846
  4,776
  5,839
  7,038
  8,373
  9,846
  11,453
  13,193
  15,062
  17,059
  19,179
  21,421
  23,781
  26,258
  28,851
  31,559
  34,383
  37,324
  40,384
  43,566
  46,872
Total debt, $m
  733
  1,230
  1,996
  3,073
  4,538
  6,474
  8,967
  12,096
  15,938
  20,559
  26,014
  32,346
  39,586
  47,750
  56,847
  66,873
  77,818
  89,666
  102,399
  115,996
  130,435
  145,700
  161,772
  178,641
  196,299
  214,742
  233,974
  254,002
  274,840
  296,507
  319,027
Total liabilities, $m
  909
  1,406
  2,172
  3,249
  4,714
  6,650
  9,143
  12,272
  16,114
  20,735
  26,190
  32,522
  39,762
  47,926
  57,023
  67,049
  77,994
  89,842
  102,575
  116,172
  130,611
  145,876
  161,948
  178,817
  196,475
  214,918
  234,150
  254,178
  275,016
  296,683
  319,203
Total equity, $m
  742
  880
  1,360
  2,034
  2,951
  4,163
  5,724
  7,683
  10,088
  12,981
  16,396
  20,360
  24,891
  30,003
  35,697
  41,974
  48,825
  56,243
  64,214
  72,725
  81,765
  91,320
  101,382
  111,942
  122,996
  134,542
  146,582
  159,120
  172,165
  185,728
  199,826
Total liabilities and equity, $m
  1,651
  2,286
  3,532
  5,283
  7,665
  10,813
  14,867
  19,955
  26,202
  33,716
  42,586
  52,882
  64,653
  77,929
  92,720
  109,023
  126,819
  146,085
  166,789
  188,897
  212,376
  237,196
  263,330
  290,759
  319,471
  349,460
  380,732
  413,298
  447,181
  482,411
  519,029
Debt-to-equity ratio
  0.988
  1.400
  1.470
  1.510
  1.540
  1.560
  1.570
  1.570
  1.580
  1.580
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
  1.590
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
  1.600
Adjusted equity ratio
  0.364
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -147
  -41
  -55
  -76
  -106
  -147
  -201
  -271
  -359
  -469
  -600
  -733
  -915
  -1,124
  -1,360
  -1,623
  -1,914
  -2,232
  -2,578
  -2,949
  -3,346
  -3,768
  -4,214
  -4,684
  -5,178
  -5,696
  -6,236
  -6,800
  -7,387
  -7,998
  -8,633
Depreciation, amort., depletion, $m
  99
  105
  150
  212
  296
  408
  552
  733
  955
  1,222
  1,537
  1,879
  2,297
  2,769
  3,295
  3,874
  4,506
  5,191
  5,926
  6,712
  7,546
  8,428
  9,357
  10,331
  11,352
  12,417
  13,528
  14,685
  15,889
  17,141
  18,442
Funds from operations, $m
  89
  64
  94
  136
  191
  262
  352
  462
  596
  754
  937
  1,146
  1,383
  1,645
  1,935
  2,251
  2,592
  2,958
  3,349
  3,763
  4,200
  4,660
  5,143
  5,647
  6,173
  6,722
  7,292
  7,886
  8,503
  9,144
  9,810
Change in working capital, $m
  23
  77
  113
  158
  215
  284
  366
  460
  564
  679
  801
  930
  1,063
  1,199
  1,336
  1,472
  1,607
  1,740
  1,870
  1,997
  2,120
  2,241
  2,360
  2,477
  2,593
  2,708
  2,824
  2,941
  3,060
  3,182
  3,307
Cash from operations, $m
  66
  -13
  -18
  -22
  -25
  -23
  -14
  3
  32
  75
  136
  216
  319
  447
  599
  778
  985
  1,218
  1,479
  1,767
  2,080
  2,419
  2,782
  3,170
  3,580
  4,013
  4,468
  4,945
  5,443
  5,962
  6,503
Maintenance CAPEX, $m
  0
  -51
  -81
  -126
  -188
  -272
  -384
  -528
  -709
  -931
  -1,198
  -1,513
  -1,879
  -2,297
  -2,769
  -3,295
  -3,874
  -4,506
  -5,191
  -5,926
  -6,712
  -7,546
  -8,428
  -9,357
  -10,331
  -11,352
  -12,417
  -13,528
  -14,685
  -15,889
  -17,141
New CAPEX, $m
  -50
  -304
  -443
  -622
  -846
  -1,119
  -1,440
  -1,808
  -2,220
  -2,670
  -3,152
  -3,658
  -4,183
  -4,717
  -5,256
  -5,793
  -6,324
  -6,846
  -7,357
  -7,856
  -8,343
  -8,819
  -9,286
  -9,746
  -10,202
  -10,656
  -11,111
  -11,572
  -12,039
  -12,518
  -13,011
Cash from investing activities, $m
  -642
  -355
  -524
  -748
  -1,034
  -1,391
  -1,824
  -2,336
  -2,929
  -3,601
  -4,350
  -5,171
  -6,062
  -7,014
  -8,025
  -9,088
  -10,198
  -11,352
  -12,548
  -13,782
  -15,055
  -16,365
  -17,714
  -19,103
  -20,533
  -22,008
  -23,528
  -25,100
  -26,724
  -28,407
  -30,152
Free cash flow, $m
  -576
  -368
  -542
  -770
  -1,059
  -1,414
  -1,839
  -2,334
  -2,897
  -3,526
  -4,214
  -4,955
  -5,742
  -6,568
  -7,425
  -8,309
  -9,213
  -10,133
  -11,068
  -12,015
  -12,975
  -13,946
  -14,932
  -15,933
  -16,953
  -17,994
  -19,060
  -20,155
  -21,282
  -22,446
  -23,650
Issuance/(repayment) of debt, $m
  675
  526
  766
  1,076
  1,465
  1,937
  2,492
  3,130
  3,842
  4,621
  5,455
  6,332
  7,239
  8,165
  9,097
  10,026
  10,945
  11,849
  12,733
  13,597
  14,440
  15,264
  16,073
  16,869
  17,658
  18,443
  19,232
  20,028
  20,838
  21,667
  22,520
Issuance/(repurchase) of shares, $m
  11
  371
  535
  750
  1,023
  1,359
  1,761
  2,230
  2,765
  3,361
  4,015
  4,697
  5,447
  6,235
  7,054
  7,899
  8,766
  9,650
  10,549
  11,461
  12,385
  13,323
  14,276
  15,245
  16,232
  17,241
  18,275
  19,338
  20,432
  21,561
  22,731
Cash from financing (excl. dividends), $m  
  663
  897
  1,301
  1,826
  2,488
  3,296
  4,253
  5,360
  6,607
  7,982
  9,470
  11,029
  12,686
  14,400
  16,151
  17,925
  19,711
  21,499
  23,282
  25,058
  26,825
  28,587
  30,349
  32,114
  33,890
  35,684
  37,507
  39,366
  41,270
  43,228
  45,251
Total cash flow (excl. dividends), $m
  87
  529
  759
  1,057
  1,429
  1,882
  2,415
  3,026
  3,709
  4,456
  5,257
  6,074
  6,944
  7,831
  8,725
  9,617
  10,498
  11,365
  12,213
  13,042
  13,850
  14,641
  15,417
  16,180
  16,937
  17,691
  18,447
  19,211
  19,988
  20,783
  21,601
Retained Cash Flow (-), $m
  -388
  -371
  -535
  -750
  -1,023
  -1,359
  -1,761
  -2,230
  -2,765
  -3,361
  -4,015
  -4,697
  -5,447
  -6,235
  -7,054
  -7,899
  -8,766
  -9,650
  -10,549
  -11,461
  -12,385
  -13,323
  -14,276
  -15,245
  -16,232
  -17,241
  -18,275
  -19,338
  -20,432
  -21,561
  -22,731
Prev. year cash balance distribution, $m
 
  192
  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
 
  350
  224
  307
  406
  523
  654
  796
  945
  1,095
  1,241
  1,377
  1,497
  1,597
  1,671
  1,717
  1,732
  1,715
  1,665
  1,581
  1,465
  1,318
  1,141
  936
  705
  449
  172
  -127
  -444
  -779
  -1,130
Discount rate, %
 
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
 
  325
  192
  240
  289
  334
  373
  400
  415
  415
  402
  375
  339
  296
  250
  204
  161
  122
  89
  63
  42
  27
  16
  9
  4
  2
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  88.9
  80.0
  72.6
  66.4
  61.2
  56.8
  53.0
  49.7
  46.8
  44.3
  42.0
  40.1
  38.3
  36.7
  35.3
  33.9
  32.8
  31.7
  30.6
  29.7
  28.8
  28.0
  27.3
  26.6
  25.9
  25.3
  24.7
  24.1
  23.5
  23.0

Cavium, Inc. designs, develops, and markets semiconductor processors for intelligent and secure networks in the United States and internationally. It offers integrated semiconductor processors for wired and wireless networking, communications, storage, cloud, wireless, security, video, and connected home and office applications. The company’s products also include a suite of embedded security protocols that enable unified threat management, secure connectivity, network perimeter protection, and deep packet inspection. In addition, it provides commercial grade embedded Linux operating systems, development tools, application software stacks, and support and services. The company offers its products under the OCTEON, OCTEON Fusion-M, OCTEON XL, LiquidIO, LiquidSecurity, NITROX, NEURON Search, ThunderX, Xpliant, and XPA trademarks. It sells its products to providers of networking, wireless, storage, and consumer electronic equipment directly or through contract manufacturing organizations and distributors. The company was founded in 2000 and is headquartered in San Jose, California.

FINANCIAL RATIOS  of  Cavium (CAVM)

Valuation Ratios
P/E Ratio -27.9
Price to Sales 6.8
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 62.2
Price to Free Cash Flow 256.7
Growth Rates
Sales Growth Rate 46%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 38.9%
Cap. Spend. - 3 Yr. Gr. Rate 40.9%
Financial Strength
Quick Ratio 8
Current Ratio 0
LT Debt to Equity 94.9%
Total Debt to Equity 98.8%
Interest Coverage -14
Management Effectiveness
Return On Assets -13.1%
Ret/ On Assets - 3 Yr. Avg. -6.7%
Return On Total Capital -15.8%
Ret/ On T. Cap. - 3 Yr. Avg. -8.2%
Return On Equity -26.8%
Return On Equity - 3 Yr. Avg. -12.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 47.3%
Gross Margin - 3 Yr. Avg. 58.5%
EBITDA Margin -6.1%
EBITDA Margin - 3 Yr. Avg. 1.3%
Operating Margin -22.2%
Oper. Margin - 3 Yr. Avg. -9.1%
Pre-Tax Margin -24.2%
Pre-Tax Margin - 3 Yr. Avg. -11.4%
Net Profit Margin -24.4%
Net Profit Margin - 3 Yr. Avg. -10.8%
Effective Tax Rate -0.7%
Eff/ Tax Rate - 3 Yr. Avg. -7.5%
Payout Ratio 0%

CAVM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAVM stock intrinsic value calculation we used $603 million for the last fiscal year's total revenue generated by Cavium. The default revenue input number comes from 2016 income statement of Cavium. 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 CAVM 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 7.7%, whose default value for CAVM is calculated based on our internal credit rating of Cavium, 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 Cavium.
    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 CAVM stock the variable cost ratio is equal to 103.2%.

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 CAVM 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 Cavium.

Corporate tax rate of 27% is the nominal tax rate for Cavium. 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 CAVM 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 CAVM are equal to 84.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Cavium 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 CAVM is equal to 21.4%. 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 - $742 million for Cavium - 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 65.766 million for Cavium 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 Cavium at the current share price and the inputted number of shares is $4.0 billion.

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COMPANY NEWS

▶ Are semiconductors the next M&A target?   [Aug-15-17 01:19PM  CNBC Videos]
▶ Chipmaker Cavium Posts 5th Straight Beat-And-Raise Quarter   [Aug-03-17 04:01PM  Investor's Business Daily]
▶ Cavium reports 2Q loss   [Aug-02-17 10:07PM  Associated Press]
▶ NVIDIA a Buy on 4th Wave of Computing': Jefferies   [Jul-25-17 05:13PM  Investopedia]
▶ Why Intel Stock Just Got Hit With a Sell Rating   [Jul-10-17 11:29AM  Fortune]
▶ [$$] AMD Launches Fight Against Intel in Lucrative Server-Chip Market   [Jun-20-17 04:00PM  The Wall Street Journal]
▶ Which Companies Are Now Outperforming 95% Of All Stocks?   [11:34AM  Investor's Business Daily]
▶ Chip Stocks To Watch And Semiconductor Industry News   [08:33AM  Investor's Business Daily]
▶ Chip Stock With 132% EPS Growth Tests Support, Gets Rating Upgrade   [Jun-16-17 05:27PM  Investor's Business Daily]
▶ IBD 50 Chip Stock Cavium Initiated With Buy Rating   [Jun-09-17 04:26PM  Investor's Business Daily]
▶ Cavium, Inc. Value Analysis (NASDAQ:CAVM) : June 8, 2017   [Jun-08-17 02:08PM  Capital Cube]
▶ Stocks To Buy And Watch: Top IPOs, Big And Small Caps, Growth Stocks   [May-22-17 09:09AM  Investor's Business Daily]
▶ 2 Key Takeaways From Cavium's Recent Earnings Report   [May-17-17 01:11PM  Motley Fool]
▶ ETFs with exposure to Cavium, Inc. : May 15, 2017   [May-15-17 03:23PM  Capital Cube]
▶ Cavium QLogic Accelerates NVMe over Fabrics Adoption   [May-09-17 08:00AM  PR Newswire]
▶ Opening Bell, May 8, 2017   [May-08-17 09:29AM  CNBC Videos]
▶ Today's Bell Ringer, May 8, 2017   [09:19AM  CNBC Videos]
▶ Cavium reports 1Q loss   [Apr-26-17 04:44PM  Associated Press]
▶ Chipmaker Cavium Beats Wall Street's Q1 Targets   [04:17PM  Investor's Business Daily]
▶ What to Expect From Caviums Q1 Earnings   [Apr-22-17 01:18PM  Motley Fool]
▶ Why Microsofts Partnership with Qualcomm Is Worth Mentioning   [Apr-03-17 09:06AM  at Market Realist]
▶ Broadcom, Cavium, Intel Started At Buy; Nvidia, AMD At Neutral   [Mar-31-17 04:28PM  Investor's Business Daily]
▶ Tech Stocks Up, But Dow Flat; Can These 6 Chip Stocks Win Big In 2017?   [Mar-24-17 02:00PM  Investor's Business Daily]
▶ Hidden Value of Small-Cap Semiconductor Stocks   [Mar-16-17 06:00AM  Investopedia]
▶ Cavium Inc. Talks Chip Manufacturing Tech   [Mar-10-17 10:30AM  at Motley Fool]
▶ [$$] Microsoft to Unveil a Windows Server Running on ARM Chips   [12:40PM  at The Wall Street Journal]
Stock chart of CAVM Financial statements of CAVM
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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