Intrinsic value of Lam Research - LRCX

Previous Close

$155.12

  Intrinsic Value

$5,495

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+1126%

Previous close

$155.12

 
Intrinsic value

$5,495

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+1126%

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

We calculate the intrinsic value of LRCX 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 24.9

 

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, %
  11.92
  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
  5,886
  9,418
  14,550
  21,760
  31,572
  44,544
  61,238
  82,199
  107,933
  138,883
  175,421
  217,833
  266,321
  321,007
  381,934
  449,087
  522,396
  601,756
  687,040
  778,109
  874,825
  977,063
  1,084,717
  1,197,703
  1,315,972
  1,439,504
  1,568,318
  1,702,465
  1,842,037
  1,987,160
  2,137,997
Variable operating expenses, $m
 
  5,040
  7,711
  11,464
  16,571
  23,322
  32,010
  42,919
  56,312
  72,421
  91,437
  113,372
  138,608
  167,069
  198,779
  233,729
  271,882
  313,186
  357,572
  404,969
  455,305
  508,515
  564,544
  623,348
  684,901
  749,194
  816,235
  886,052
  958,693
  1,034,223
  1,112,726
Fixed operating expenses, $m
 
  1,692
  1,735
  1,778
  1,822
  1,868
  1,915
  1,963
  2,012
  2,062
  2,113
  2,166
  2,220
  2,276
  2,333
  2,391
  2,451
  2,512
  2,575
  2,639
  2,705
  2,773
  2,842
  2,913
  2,986
  3,061
  3,137
  3,216
  3,296
  3,379
  3,463
Total operating expenses, $m
  4,812
  6,732
  9,446
  13,242
  18,393
  25,190
  33,925
  44,882
  58,324
  74,483
  93,550
  115,538
  140,828
  169,345
  201,112
  236,120
  274,333
  315,698
  360,147
  407,608
  458,010
  511,288
  567,386
  626,261
  687,887
  752,255
  819,372
  889,268
  961,989
  1,037,602
  1,116,189
Operating income, $m
  1,074
  2,685
  5,104
  8,518
  13,179
  19,354
  27,313
  37,317
  49,609
  64,401
  81,870
  102,295
  125,493
  151,662
  180,823
  212,967
  248,063
  286,059
  326,893
  370,501
  416,815
  465,775
  517,331
  571,442
  628,085
  687,250
  748,945
  813,197
  880,048
  949,559
  1,021,808
EBITDA, $m
  1,365
  3,013
  5,536
  9,095
  13,953
  20,389
  28,684
  39,110
  51,919
  67,334
  85,539
  106,678
  130,853
  158,122
  188,509
  222,005
  258,575
  298,168
  340,719
  386,159
  434,419
  485,437
  539,159
  595,544
  654,567
  716,218
  780,505
  847,456
  917,116
  989,548
  1,064,832
Interest expense (income), $m
  59
  125
  210
  359
  569
  854
  1,231
  1,717
  2,327
  3,075
  3,975
  5,038
  6,272
  7,682
  9,272
  11,045
  12,998
  15,130
  17,438
  19,919
  22,568
  25,381
  28,354
  31,486
  34,772
  38,212
  41,805
  45,552
  49,453
  53,513
  57,734
Earnings before tax, $m
  960
  2,560
  4,895
  8,159
  12,611
  18,500
  26,082
  35,600
  47,282
  61,325
  77,895
  97,257
  119,222
  143,980
  171,550
  201,923
  235,065
  270,928
  309,455
  350,582
  394,247
  440,394
  488,976
  539,957
  593,313
  649,038
  707,140
  767,645
  830,595
  896,046
  964,074
Tax expense, $m
  46
  691
  1,322
  2,203
  3,405
  4,995
  7,042
  9,612
  12,766
  16,558
  21,032
  26,259
  32,190
  38,875
  46,319
  54,519
  63,468
  73,151
  83,553
  94,657
  106,447
  118,907
  132,024
  145,788
  160,194
  175,240
  190,928
  207,264
  224,261
  241,932
  260,300
Net income, $m
  914
  1,869
  3,573
  5,956
  9,206
  13,505
  19,040
  25,988
  34,516
  44,768
  56,863
  70,997
  87,032
  105,105
  125,232
  147,404
  171,597
  197,778
  225,902
  255,925
  287,800
  321,488
  356,953
  394,168
  433,118
  473,798
  516,212
  560,381
  606,334
  654,114
  703,774

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6,828
  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
  12,264
  8,696
  13,435
  20,092
  29,153
  41,130
  56,545
  75,899
  99,661
  128,239
  161,977
  201,138
  245,911
  296,405
  352,663
  414,669
  482,360
  555,638
  634,386
  718,475
  807,779
  902,182
  1,001,585
  1,105,913
  1,215,117
  1,329,182
  1,448,123
  1,571,990
  1,700,865
  1,834,867
  1,974,143
Adjusted assets (=assets-cash), $m
  5,436
  8,696
  13,435
  20,092
  29,153
  41,130
  56,545
  75,899
  99,661
  128,239
  161,977
  201,138
  245,911
  296,405
  352,663
  414,669
  482,360
  555,638
  634,386
  718,475
  807,779
  902,182
  1,001,585
  1,105,913
  1,215,117
  1,329,182
  1,448,123
  1,571,990
  1,700,865
  1,834,867
  1,974,143
Revenue / Adjusted assets
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
Average production assets, $m
  957
  1,535
  2,372
  3,547
  5,146
  7,261
  9,982
  13,398
  17,593
  22,638
  28,594
  35,507
  43,410
  52,324
  62,255
  73,201
  85,151
  98,086
  111,988
  126,832
  142,596
  159,261
  176,809
  195,226
  214,503
  234,639
  255,636
  277,502
  300,252
  323,907
  348,494
Working capital, $m
  6,795
  1,460
  2,255
  3,373
  4,894
  6,904
  9,492
  12,741
  16,730
  21,527
  27,190
  33,764
  41,280
  49,756
  59,200
  69,608
  80,971
  93,272
  106,491
  120,607
  135,598
  151,445
  168,131
  185,644
  203,976
  223,123
  243,089
  263,882
  285,516
  308,010
  331,390
Total debt, $m
  4,533
  5,990
  10,256
  16,247
  24,401
  35,181
  49,054
  66,473
  87,859
  113,579
  143,943
  179,188
  219,484
  264,928
  315,561
  371,367
  432,288
  498,239
  569,111
  644,792
  725,165
  810,128
  899,591
  993,485
  1,091,770
  1,194,428
  1,301,475
  1,412,955
  1,528,943
  1,649,544
  1,774,893
Total liabilities, $m
  6,370
  7,826
  12,092
  18,083
  26,237
  37,017
  50,890
  68,309
  89,695
  115,415
  145,779
  181,024
  221,320
  266,764
  317,397
  373,203
  434,124
  500,075
  570,947
  646,628
  727,001
  811,964
  901,427
  995,321
  1,093,606
  1,196,264
  1,303,311
  1,414,791
  1,530,779
  1,651,380
  1,776,729
Total equity, $m
  5,895
  870
  1,344
  2,009
  2,915
  4,113
  5,654
  7,590
  9,966
  12,824
  16,198
  20,114
  24,591
  29,640
  35,266
  41,467
  48,236
  55,564
  63,439
  71,848
  80,778
  90,218
  100,159
  110,591
  121,512
  132,918
  144,812
  157,199
  170,087
  183,487
  197,414
Total liabilities and equity, $m
  12,265
  8,696
  13,436
  20,092
  29,152
  41,130
  56,544
  75,899
  99,661
  128,239
  161,977
  201,138
  245,911
  296,404
  352,663
  414,670
  482,360
  555,639
  634,386
  718,476
  807,779
  902,182
  1,001,586
  1,105,912
  1,215,118
  1,329,182
  1,448,123
  1,571,990
  1,700,866
  1,834,867
  1,974,143
Debt-to-equity ratio
  0.769
  6.890
  7.630
  8.090
  8.370
  8.550
  8.680
  8.760
  8.820
  8.860
  8.890
  8.910
  8.930
  8.940
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.990
  8.990
  8.990
  8.990
  8.990
  8.990
Adjusted equity ratio
  -0.172
  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
  914
  1,869
  3,573
  5,956
  9,206
  13,505
  19,040
  25,988
  34,516
  44,768
  56,863
  70,997
  87,032
  105,105
  125,232
  147,404
  171,597
  197,778
  225,902
  255,925
  287,800
  321,488
  356,953
  394,168
  433,118
  473,798
  516,212
  560,381
  606,334
  654,114
  703,774
Depreciation, amort., depletion, $m
  291
  328
  431
  576
  774
  1,035
  1,371
  1,793
  2,311
  2,933
  3,669
  4,384
  5,359
  6,460
  7,686
  9,037
  10,512
  12,109
  13,826
  15,658
  17,605
  19,662
  21,828
  24,102
  26,482
  28,968
  31,560
  34,259
  37,068
  39,989
  43,024
Funds from operations, $m
  1,298
  2,197
  4,005
  6,533
  9,980
  14,540
  20,411
  27,781
  36,826
  47,701
  60,532
  75,381
  92,391
  111,565
  132,918
  156,441
  182,110
  209,887
  239,728
  271,583
  305,405
  341,150
  378,781
  418,270
  459,600
  502,765
  547,772
  594,641
  643,402
  694,102
  746,798
Change in working capital, $m
  -52
  547
  796
  1,117
  1,521
  2,011
  2,588
  3,249
  3,989
  4,797
  5,663
  6,574
  7,516
  8,476
  9,444
  10,409
  11,363
  12,301
  13,219
  14,116
  14,991
  15,847
  16,686
  17,513
  18,332
  19,148
  19,966
  20,793
  21,634
  22,494
  23,380
Cash from operations, $m
  1,350
  1,257
  3,209
  5,415
  8,459
  12,530
  17,823
  24,532
  32,838
  42,904
  54,869
  68,807
  84,875
  103,089
  123,474
  146,032
  170,747
  197,586
  226,509
  257,467
  290,414
  325,303
  362,095
  400,757
  441,269
  483,618
  527,806
  573,848
  621,768
  671,608
  723,418
Maintenance CAPEX, $m
  0
  -118
  -190
  -293
  -438
  -635
  -896
  -1,232
  -1,654
  -2,172
  -2,795
  -3,530
  -4,384
  -5,359
  -6,460
  -7,686
  -9,037
  -10,512
  -12,109
  -13,826
  -15,658
  -17,605
  -19,662
  -21,828
  -24,102
  -26,482
  -28,968
  -31,560
  -34,259
  -37,068
  -39,989
New CAPEX, $m
  -175
  -578
  -837
  -1,175
  -1,599
  -2,114
  -2,721
  -3,417
  -4,195
  -5,045
  -5,956
  -6,913
  -7,904
  -8,914
  -9,931
  -10,946
  -11,949
  -12,936
  -13,901
  -14,844
  -15,765
  -16,665
  -17,547
  -18,417
  -19,278
  -20,136
  -20,997
  -21,866
  -22,750
  -23,655
  -24,586
Cash from investing activities, $m
  592
  -696
  -1,027
  -1,468
  -2,037
  -2,749
  -3,617
  -4,649
  -5,849
  -7,217
  -8,751
  -10,443
  -12,288
  -14,273
  -16,391
  -18,632
  -20,986
  -23,448
  -26,010
  -28,670
  -31,423
  -34,270
  -37,209
  -40,245
  -43,380
  -46,618
  -49,965
  -53,426
  -57,009
  -60,723
  -64,575
Free cash flow, $m
  1,942
  561
  2,183
  3,947
  6,422
  9,780
  14,206
  19,883
  26,989
  35,687
  46,118
  58,364
  72,588
  88,816
  107,083
  127,400
  149,760
  174,138
  200,498
  228,797
  258,991
  291,034
  324,885
  360,512
  397,889
  437,000
  477,842
  520,422
  564,759
  610,885
  658,843
Issuance/(repayment) of debt, $m
  1,887
  2,405
  4,265
  5,991
  8,155
  10,780
  13,873
  17,419
  21,385
  25,721
  30,364
  35,245
  40,295
  45,445
  50,633
  55,805
  60,922
  65,950
  70,873
  75,680
  80,374
  84,963
  89,463
  93,895
  98,284
  102,658
  107,047
  111,480
  115,988
  120,601
  125,349
Issuance/(repurchase) of shares, $m
  -155
  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  
  1,786
  2,405
  4,265
  5,991
  8,155
  10,780
  13,873
  17,419
  21,385
  25,721
  30,364
  35,245
  40,295
  45,445
  50,633
  55,805
  60,922
  65,950
  70,873
  75,680
  80,374
  84,963
  89,463
  93,895
  98,284
  102,658
  107,047
  111,480
  115,988
  120,601
  125,349
Total cash flow (excl. dividends), $m
  3,728
  2,966
  6,448
  9,939
  14,576
  20,560
  28,079
  37,302
  48,374
  61,407
  76,482
  93,609
  112,883
  134,261
  157,715
  183,206
  210,682
  240,089
  271,371
  304,478
  339,365
  375,996
  414,348
  454,407
  496,173
  539,659
  584,889
  631,902
  680,747
  731,486
  784,192
Retained Cash Flow (-), $m
  -792
  -855
  -474
  -666
  -906
  -1,198
  -1,541
  -1,935
  -2,376
  -2,858
  -3,374
  -3,916
  -4,477
  -5,049
  -5,626
  -6,201
  -6,769
  -7,328
  -7,875
  -8,409
  -8,930
  -9,440
  -9,940
  -10,433
  -10,920
  -11,406
  -11,894
  -12,387
  -12,888
  -13,400
  -13,928
Prev. year cash balance distribution, $m
 
  5,880
  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
 
  7,992
  5,974
  9,273
  13,670
  19,362
  26,537
  35,367
  45,998
  58,550
  73,108
  89,693
  108,406
  129,211
  152,090
  177,005
  203,913
  232,761
  263,496
  296,069
  330,434
  366,556
  404,408
  443,974
  485,253
  528,252
  572,995
  619,515
  667,859
  718,086
  770,265
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
 
  7,662
  5,469
  8,070
  11,256
  15,008
  19,259
  23,893
  28,750
  33,634
  38,328
  42,594
  46,261
  49,129
  51,059
  51,966
  51,819
  50,645
  48,525
  45,586
  41,988
  37,914
  33,555
  29,099
  24,715
  20,550
  16,717
  13,297
  10,333
  7,839
  5,800
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

Lam Research Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing systems used in the fabrication of integrated circuits. It provides thin film deposition products, including SABRE electrochemical deposition products for copper damascene manufacturing; ALTUS systems to deposit conformal atomic layer films for tungsten metallization applications; VECTOR plasma-enhanced chemical vapor deposition (CVD) and atomic layer deposition systems to deposit oxides, nitrides, carbides, multiple patterning films, anti-reflective layers, multi-layer stack films, and diffusion barriers; SPEED high-density plasma CVD products for applications in shallow trench isolation, pre-metal dielectrics, inter-layer dielectrics, inter-metal dielectrics, and passivation layers; and SOLA ultraviolet thermal processing products for the treatment of back-end-of-line low-k dielectric films and front-end-of-line silicon nitride strained films. The company also offers plasma etch products, such as Kiyo products that provide solutions for conductor etch applications; Flex products, which offer technologies and application-focused capabilities for dielectric etch applications; and Syndion products that provide solutions to address various through-silicon via etch applications. In addition, it provides single-wafer clean products, including EOS, Da Vinci, DV-Prime, and SP series products for wet etch and clean applications in wafer-level packaging, including silicon substrate thinning, wafer stress relief, underbump metallization etch, and photoresist removal; and Coronus plasma-based bevel clean products to enhance die yield by removing particles, residues, and unwanted films from the wafer’s edge, as well as legacy products. The company offers its products in the United States, Europe, Taiwan, Korea, Japan, China, and Southeast Asia. Lam Research Corporation was founded in 1980 and is headquartered in Fremont, California.

FINANCIAL RATIOS  of  Lam Research (LRCX)

Valuation Ratios
P/E Ratio 27.2
Price to Sales 4.2
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 18.4
Price to Free Cash Flow 21.1
Growth Rates
Sales Growth Rate 11.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.6%
Cap. Spend. - 3 Yr. Gr. Rate 1.7%
Financial Strength
Quick Ratio 7
Current Ratio 0
LT Debt to Equity 60.8%
Total Debt to Equity 76.9%
Interest Coverage 17
Management Effectiveness
Return On Assets 9%
Ret/ On Assets - 3 Yr. Avg. 8.5%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9.8%
Return On Equity 16.6%
Return On Equity - 3 Yr. Avg. 14.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 44.5%
Gross Margin - 3 Yr. Avg. 43.8%
EBITDA Margin 22.3%
EBITDA Margin - 3 Yr. Avg. 21.6%
Operating Margin 18.2%
Oper. Margin - 3 Yr. Avg. 16%
Pre-Tax Margin 16.3%
Pre-Tax Margin - 3 Yr. Avg. 15.4%
Net Profit Margin 15.5%
Net Profit Margin - 3 Yr. Avg. 13.9%
Effective Tax Rate 4.8%
Eff/ Tax Rate - 3 Yr. Avg. 9.6%
Payout Ratio 20.8%

LRCX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LRCX stock intrinsic value calculation we used $5886 million for the last fiscal year's total revenue generated by Lam Research. The default revenue input number comes from 2016 income statement of Lam Research. 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 LRCX stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for LRCX is calculated based on our internal credit rating of Lam Research, 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 Lam Research.
    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 LRCX stock the variable cost ratio is equal to 54.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1651 million in the base year in the intrinsic value calculation for LRCX 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 Lam Research.

Corporate tax rate of 27% is the nominal tax rate for Lam Research. 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 LRCX 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 LRCX are equal to 16.3%.

Life of production assets of 8.1 years is the average useful life of capital assets used in Lam Research 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 LRCX is equal to 15.5%. 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 - $5895 million for Lam Research - 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 160.754 million for Lam Research 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 Lam Research at the current share price and the inputted number of shares is $24.9 billion.

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Stock chart of LRCX Financial statements of LRCX Annual reports of LRCX
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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