Intrinsic value of InterDigital - IDCC

Previous Close

$83.40

  Intrinsic Value

$136.88

stock screener

  Rating & Target

str. buy

+64%

Previous close

$83.40

 
Intrinsic value

$136.88

 
Up/down potential

+64%

 
Rating

str. buy

We calculate the intrinsic value of IDCC 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  51.02
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  666
  544
  556
  570
  587
  604
  624
  645
  668
  693
  719
  748
  778
  811
  845
  881
  920
  961
  1,004
  1,050
  1,098
  1,149
  1,203
  1,259
  1,319
  1,381
  1,448
  1,517
  1,590
  1,667
  1,748
Variable operating expenses, $m
 
  186
  189
  193
  198
  203
  208
  214
  221
  228
  235
  211
  219
  229
  238
  249
  259
  271
  283
  296
  310
  324
  339
  355
  372
  390
  408
  428
  449
  470
  493
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
  229
  186
  189
  193
  198
  203
  208
  214
  221
  228
  235
  211
  219
  229
  238
  249
  259
  271
  283
  296
  310
  324
  339
  355
  372
  390
  408
  428
  449
  470
  493
Operating income, $m
  437
  358
  367
  377
  389
  401
  415
  431
  447
  465
  484
  537
  559
  582
  607
  633
  660
  690
  721
  754
  788
  825
  863
  904
  947
  992
  1,039
  1,089
  1,142
  1,197
  1,255
EBITDA, $m
  490
  424
  434
  445
  457
  471
  486
  503
  521
  540
  561
  583
  607
  632
  659
  687
  717
  749
  783
  819
  856
  896
  938
  982
  1,028
  1,077
  1,129
  1,183
  1,240
  1,300
  1,364
Interest expense (income), $m
  8
  15
  15
  16
  17
  19
  21
  22
  25
  27
  29
  32
  35
  38
  41
  44
  48
  51
  55
  60
  64
  69
  74
  79
  85
  90
  97
  103
  110
  117
  124
Earnings before tax, $m
  422
  342
  352
  361
  371
  383
  395
  408
  423
  438
  455
  505
  524
  544
  566
  589
  613
  638
  665
  694
  724
  756
  790
  825
  862
  901
  943
  986
  1,032
  1,080
  1,131
Tax expense, $m
  117
  92
  95
  98
  100
  103
  107
  110
  114
  118
  123
  136
  142
  147
  153
  159
  165
  172
  180
  187
  196
  204
  213
  223
  233
  243
  255
  266
  279
  292
  305
Net income, $m
  309
  250
  257
  264
  271
  279
  288
  298
  309
  320
  332
  369
  383
  397
  413
  430
  447
  466
  486
  507
  529
  552
  576
  602
  629
  658
  688
  720
  753
  789
  826

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  953
  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
  1,728
  1,094
  1,119
  1,148
  1,180
  1,216
  1,255
  1,298
  1,344
  1,394
  1,447
  1,505
  1,566
  1,631
  1,700
  1,773
  1,851
  1,933
  2,020
  2,112
  2,209
  2,312
  2,420
  2,533
  2,653
  2,780
  2,913
  3,053
  3,200
  3,355
  3,518
Adjusted assets (=assets-cash), $m
  775
  1,094
  1,119
  1,148
  1,180
  1,216
  1,255
  1,298
  1,344
  1,394
  1,447
  1,505
  1,566
  1,631
  1,700
  1,773
  1,851
  1,933
  2,020
  2,112
  2,209
  2,312
  2,420
  2,533
  2,653
  2,780
  2,913
  3,053
  3,200
  3,355
  3,518
Revenue / Adjusted assets
  0.859
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
  0.497
Average production assets, $m
  307
  337
  344
  353
  363
  374
  386
  399
  414
  429
  445
  463
  482
  502
  523
  546
  569
  595
  621
  650
  680
  711
  744
  779
  816
  855
  896
  939
  984
  1,032
  1,082
Working capital, $m
  796
  -10
  -11
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
Total debt, $m
  272
  270
  293
  319
  348
  380
  415
  454
  495
  540
  588
  640
  695
  753
  816
  882
  952
  1,026
  1,104
  1,187
  1,274
  1,366
  1,463
  1,566
  1,674
  1,787
  1,907
  2,033
  2,166
  2,305
  2,452
Total liabilities, $m
  988
  984
  1,007
  1,033
  1,062
  1,094
  1,130
  1,168
  1,210
  1,255
  1,303
  1,354
  1,409
  1,468
  1,530
  1,596
  1,666
  1,740
  1,818
  1,901
  1,988
  2,080
  2,178
  2,280
  2,388
  2,502
  2,621
  2,747
  2,880
  3,019
  3,166
Total equity, $m
  740
  109
  112
  115
  118
  122
  126
  130
  134
  139
  145
  150
  157
  163
  170
  177
  185
  193
  202
  211
  221
  231
  242
  253
  265
  278
  291
  305
  320
  335
  352
Total liabilities and equity, $m
  1,728
  1,093
  1,119
  1,148
  1,180
  1,216
  1,256
  1,298
  1,344
  1,394
  1,448
  1,504
  1,566
  1,631
  1,700
  1,773
  1,851
  1,933
  2,020
  2,112
  2,209
  2,311
  2,420
  2,533
  2,653
  2,780
  2,912
  3,052
  3,200
  3,354
  3,518
Debt-to-equity ratio
  0.368
  2.470
  2.620
  2.780
  2.950
  3.130
  3.310
  3.500
  3.690
  3.880
  4.070
  4.250
  4.440
  4.620
  4.800
  4.970
  5.140
  5.310
  5.460
  5.620
  5.770
  5.910
  6.050
  6.180
  6.310
  6.430
  6.550
  6.660
  6.770
  6.870
  6.970
Adjusted equity ratio
  -0.275
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  309
  250
  257
  264
  271
  279
  288
  298
  309
  320
  332
  369
  383
  397
  413
  430
  447
  466
  486
  507
  529
  552
  576
  602
  629
  658
  688
  720
  753
  789
  826
Depreciation, amort., depletion, $m
  53
  66
  67
  68
  69
  70
  71
  72
  74
  75
  77
  46
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  98
  103
  108
Funds from operations, $m
  251
  316
  324
  332
  340
  349
  359
  370
  382
  395
  409
  415
  431
  448
  465
  484
  504
  526
  548
  572
  597
  623
  651
  680
  711
  744
  778
  814
  852
  892
  934
Change in working capital, $m
  -180
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
Cash from operations, $m
  431
  316
  324
  332
  340
  350
  360
  371
  383
  396
  410
  416
  431
  448
  466
  485
  505
  526
  549
  573
  598
  624
  652
  681
  712
  745
  779
  815
  853
  893
  935
Maintenance CAPEX, $m
  0
  -33
  -34
  -34
  -35
  -36
  -37
  -39
  -40
  -41
  -43
  -45
  -46
  -48
  -50
  -52
  -55
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -98
  -103
New CAPEX, $m
  -43
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
Cash from investing activities, $m
  -219
  -40
  -42
  -43
  -45
  -47
  -49
  -52
  -54
  -56
  -59
  -63
  -65
  -68
  -71
  -75
  -79
  -82
  -86
  -90
  -95
  -100
  -104
  -109
  -115
  -121
  -127
  -133
  -139
  -146
  -153
Free cash flow, $m
  212
  277
  283
  289
  295
  302
  310
  319
  329
  339
  350
  353
  366
  380
  395
  410
  427
  444
  463
  482
  503
  525
  548
  572
  597
  624
  653
  683
  714
  747
  782
Issuance/(repayment) of debt, $m
  -230
  -15
  23
  26
  29
  32
  35
  38
  42
  45
  48
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
  114
  120
  126
  133
  139
  147
Issuance/(repurchase) of shares, $m
  -64
  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  
  -287
  -15
  23
  26
  29
  32
  35
  38
  42
  45
  48
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
  114
  120
  126
  133
  139
  147
Total cash flow (excl. dividends), $m
  -75
  261
  306
  314
  324
  334
  346
  358
  370
  384
  398
  405
  421
  439
  457
  476
  497
  518
  541
  565
  590
  617
  645
  674
  705
  738
  772
  809
  847
  887
  929
Retained Cash Flow (-), $m
  -229
  -36
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Prev. year cash balance distribution, $m
 
  782
  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
 
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
Cash available for distribution, $m
 
  1,007
  303
  312
  321
  331
  342
  353
  366
  379
  393
  399
  415
  432
  450
  469
  489
  510
  532
  556
  580
  606
  634
  663
  693
  725
  759
  795
  832
  871
  912
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
 
  966
  277
  271
  264
  256
  248
  239
  229
  218
  206
  190
  177
  164
  151
  138
  124
  111
  98
  86
  74
  63
  53
  43
  35
  28
  22
  17
  13
  10
  7
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

InterDigital, Inc. designs and develops technologies for wireless communications. The Company is focused on three technology areas: cellular wireless technology, Internet of things (IoT) technology, and, through its Hillcrest Laboratories, Inc. (Hillcrest Labs) subsidiary, sensor and sensor fusion technology. It offers a range of technologies that are used in digital cellular and wireless products and networks, including second generation (2G), third generation (3G), fourth generation (4G) and IEEE 802-related products and networks. Products incorporating its inventions include mobile devices, such as cellular phones, tablets, notebook computers and wireless personal digital assistants; wireless infrastructure equipment, such as base stations; components, dongles and modules for wireless devices, and IoT devices and software platforms. The Company is developing a range of technologies in the areas of video compression and delivery, security, analytics, and other areas.

FINANCIAL RATIOS  of  InterDigital (IDCC)

Valuation Ratios
P/E Ratio 9.3
Price to Sales 4.3
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 6.6
Price to Free Cash Flow 7.4
Growth Rates
Sales Growth Rate 51%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.9%
Cap. Spend. - 3 Yr. Gr. Rate -7.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 36.8%
Total Debt to Equity 36.8%
Interest Coverage 54
Management Effectiveness
Return On Assets 19.7%
Ret/ On Assets - 3 Yr. Avg. 12.8%
Return On Total Capital 30.7%
Ret/ On T. Cap. - 3 Yr. Avg. 19.8%
Return On Equity 49.4%
Return On Equity - 3 Yr. Avg. 31.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 72.5%
EBITDA Margin - 3 Yr. Avg. 58.3%
Operating Margin 65.6%
Oper. Margin - 3 Yr. Avg. 51.1%
Pre-Tax Margin 63.4%
Pre-Tax Margin - 3 Yr. Avg. 47.1%
Net Profit Margin 46.4%
Net Profit Margin - 3 Yr. Avg. 32.8%
Effective Tax Rate 27.7%
Eff/ Tax Rate - 3 Yr. Avg. 32.7%
Payout Ratio 10%

IDCC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IDCC stock intrinsic value calculation we used $533 million for the last fiscal year's total revenue generated by InterDigital. The default revenue input number comes from 2016 income statement of InterDigital. 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 IDCC stock valuation model: a) initial revenue growth rate of 2% 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 IDCC is calculated based on our internal credit rating of InterDigital, 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 InterDigital.
    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 IDCC stock the variable cost ratio is equal to 34.3%.

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 IDCC 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 5.4% for InterDigital.

Corporate tax rate of 27% is the nominal tax rate for InterDigital. 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 IDCC stock is equal to 3.4%.

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 IDCC are equal to 61.9%.

Life of production assets of 10 years is the average useful life of capital assets used in InterDigital 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 IDCC is equal to -1.9%. 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 - $855 million for InterDigital - 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 35 million for InterDigital 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 InterDigital at the current share price and the inputted number of shares is $2.9 billion.

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COMPANY NEWS

▶ Is There Now An Opportunity In InterDigital Inc (NASDAQ:IDCC)?   [Jun-22-18 10:45AM  Simply Wall St.]
▶ InterDigital Hosts 2018 Annual Meeting of Shareholders   [May-31-18 04:30PM  GlobeNewswire]
▶ Henry Tirri Joins InterDigital as Chief Technology Officer   [May-17-18 04:00AM  GlobeNewswire]
▶ May Top Defensive Stocks To Buy   [May-14-18 04:05PM  Simply Wall St.]
▶ InterDigital, Inc. to Host Earnings Call   [Apr-26-18 09:05AM  ACCESSWIRE]
▶ InterDigital: 1Q Earnings Snapshot   [08:46AM  Associated Press]
▶ Eric Cohen Joins InterDigital as Chief Development Officer   [Apr-23-18 08:30AM  GlobeNewswire]
▶ InterDigital Wins 5G Smart Tourism Bid   [Mar-21-18 05:00AM  GlobeNewswire]
▶ InterDigital Congratulates Bristol on Smart City GLOMO Win   [Mar-15-18 09:07AM  GlobeNewswire]
▶ InterDigital posts 4Q profit   [10:29AM  Associated Press]
▶ Harris (HRS) in Focus: Stock Moves 6.2% Higher   [Jan-31-18 08:57AM  Zacks]
▶ FPA Capital Fund Establishes 4 New Positions in 4th Quarter   [Jan-11-18 12:17PM  GuruFocus.com]
▶ Smart Devices Aren't Talking to Each Other, Says IDC's Llamas   [Jan-09-18 09:27AM  Bloomberg Video]
▶ Peter Lynch Checklist Identifies 4 Good Companies   [Dec-15-17 05:29PM  GuruFocus.com]
▶ 6 Stocks Boosting Earnings and Revenue   [Dec-14-17 03:48PM  GuruFocus.com]
▶ InterDigital posts 3Q profit   [Oct-26-17 08:43AM  Associated Press]
Financial statements of IDCC
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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