Intrinsic value of Analog Devices - ADI

Previous Close

$94.26

  Intrinsic Value

$150.83

stock screener

  Rating & Target

str. buy

+60%

Previous close

$94.26

 
Intrinsic value

$150.83

 
Up/down potential

+60%

 
Rating

str. buy

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 2017), $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 32.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  49.30
  44.87
  40.88
  37.29
  34.07
  31.16
  28.54
  26.19
  24.07
  22.16
  20.45
  18.90
  17.51
  16.26
  15.13
  14.12
  13.21
  12.39
  11.65
  10.98
  10.39
  9.85
  9.36
  8.93
  8.53
  8.18
  7.86
  7.58
  7.32
  7.09
Revenue, $m
  7,626
  11,048
  15,565
  21,370
  28,650
  37,576
  48,302
  60,951
  75,622
  92,382
  111,271
  132,303
  155,471
  180,752
  208,107
  237,494
  268,865
  302,172
  337,372
  374,430
  413,318
  454,018
  496,526
  540,847
  587,001
  635,019
  684,946
  736,838
  790,763
  846,801
Variable operating expenses, $m
  4,474
  5,694
  7,305
  9,376
  11,972
  15,156
  18,982
  23,494
  28,726
  34,704
  39,688
  47,189
  55,453
  64,470
  74,227
  84,708
  95,897
  107,777
  120,332
  133,550
  147,420
  161,937
  177,099
  192,907
  209,369
  226,496
  244,304
  262,812
  282,046
  302,033
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
  4,474
  5,694
  7,305
  9,376
  11,972
  15,156
  18,982
  23,494
  28,726
  34,704
  39,688
  47,189
  55,453
  64,470
  74,227
  84,708
  95,897
  107,777
  120,332
  133,550
  147,420
  161,937
  177,099
  192,907
  209,369
  226,496
  244,304
  262,812
  282,046
  302,033
Operating income, $m
  3,152
  5,354
  8,260
  11,994
  16,677
  22,420
  29,320
  37,458
  46,896
  57,678
  71,583
  85,114
  100,018
  116,282
  133,881
  152,786
  172,967
  194,394
  217,040
  240,880
  265,897
  292,081
  319,427
  347,940
  377,632
  408,523
  440,643
  474,026
  508,717
  544,768
EBITDA, $m
  6,512
  9,434
  13,291
  18,248
  24,465
  32,087
  41,246
  52,048
  64,575
  78,887
  95,017
  112,977
  132,761
  154,348
  177,708
  202,802
  229,590
  258,032
  288,090
  319,735
  352,942
  387,697
  423,995
  461,842
  501,254
  542,258
  584,892
  629,204
  675,252
  723,104
Interest expense (income), $m
  183
  424
  714
  1,111
  1,634
  2,306
  3,149
  4,183
  5,425
  6,890
  8,589
  10,530
  12,717
  15,153
  17,836
  20,764
  23,932
  27,335
  30,968
  34,826
  38,902
  43,194
  47,697
  52,411
  57,334
  62,467
  67,812
  73,373
  79,155
  85,164
  91,409
Earnings before tax, $m
  2,728
  4,640
  7,149
  10,360
  14,371
  19,271
  25,137
  32,033
  40,006
  49,089
  61,053
  72,396
  84,865
  98,446
  113,117
  128,854
  145,632
  163,426
  182,214
  201,978
  222,703
  244,383
  267,016
  290,606
  315,165
  340,712
  367,270
  394,871
  423,553
  453,358
Tax expense, $m
  737
  1,253
  1,930
  2,797
  3,880
  5,203
  6,787
  8,649
  10,802
  13,254
  16,484
  19,547
  22,914
  26,580
  30,541
  34,791
  39,321
  44,125
  49,198
  54,534
  60,130
  65,984
  72,094
  78,464
  85,095
  91,992
  99,163
  106,615
  114,359
  122,407
Net income, $m
  1,992
  3,387
  5,219
  7,563
  10,491
  14,068
  18,350
  23,384
  29,204
  35,835
  44,569
  52,849
  61,952
  71,865
  82,575
  94,063
  106,311
  119,301
  133,016
  147,444
  162,574
  178,400
  194,922
  212,143
  230,071
  248,720
  268,107
  288,256
  309,194
  330,952

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  31,513
  45,653
  64,318
  88,305
  118,387
  155,274
  199,594
  251,865
  312,488
  381,744
  459,797
  546,706
  642,444
  746,908
  859,948
  981,381
  1,111,011
  1,248,643
  1,394,099
  1,547,231
  1,707,924
  1,876,108
  2,051,759
  2,234,905
  2,425,624
  2,624,047
  2,830,356
  3,044,785
  3,267,616
  3,499,178
Adjusted assets (=assets-cash), $m
  31,513
  45,653
  64,318
  88,305
  118,387
  155,274
  199,594
  251,865
  312,488
  381,744
  459,797
  546,706
  642,444
  746,908
  859,948
  981,381
  1,111,011
  1,248,643
  1,394,099
  1,547,231
  1,707,924
  1,876,108
  2,051,759
  2,234,905
  2,425,624
  2,624,047
  2,830,356
  3,044,785
  3,267,616
  3,499,178
Revenue / Adjusted assets
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
Average production assets, $m
  16,061
  23,267
  32,780
  45,005
  60,336
  79,136
  101,723
  128,363
  159,260
  194,556
  234,336
  278,630
  327,423
  380,663
  438,274
  500,163
  566,229
  636,373
  710,506
  788,549
  870,447
  956,162
  1,045,683
  1,139,024
  1,236,224
  1,337,351
  1,442,497
  1,551,781
  1,665,347
  1,783,363
Working capital, $m
  473
  685
  965
  1,325
  1,776
  2,330
  2,995
  3,779
  4,689
  5,728
  6,899
  8,203
  9,639
  11,207
  12,903
  14,725
  16,670
  18,735
  20,917
  23,215
  25,626
  28,149
  30,785
  33,533
  36,394
  39,371
  42,467
  45,684
  49,027
  52,502
Total debt, $m
  13,227
  20,566
  30,253
  42,702
  58,314
  77,459
  100,461
  127,590
  159,053
  194,997
  235,506
  280,612
  330,300
  384,517
  443,185
  506,209
  573,486
  644,917
  720,409
  799,885
  883,284
  970,572
  1,061,735
  1,156,787
  1,255,771
  1,358,752
  1,465,827
  1,577,115
  1,692,764
  1,812,945
Total liabilities, $m
  16,355
  23,694
  33,381
  45,830
  61,443
  80,587
  103,589
  130,718
  162,181
  198,125
  238,634
  283,741
  333,428
  387,645
  446,313
  509,337
  576,615
  648,046
  723,538
  803,013
  886,413
  973,700
  1,064,863
  1,159,916
  1,258,899
  1,361,880
  1,468,955
  1,580,244
  1,695,893
  1,816,073
Total equity, $m
  15,158
  21,959
  30,937
  42,475
  56,944
  74,687
  96,005
  121,147
  150,307
  183,619
  221,162
  262,966
  309,015
  359,263
  413,635
  472,044
  534,396
  600,597
  670,562
  744,218
  821,512
  902,408
  986,896
  1,074,989
  1,166,725
  1,262,167
  1,361,401
  1,464,542
  1,571,723
  1,683,105
Total liabilities and equity, $m
  31,513
  45,653
  64,318
  88,305
  118,387
  155,274
  199,594
  251,865
  312,488
  381,744
  459,796
  546,707
  642,443
  746,908
  859,948
  981,381
  1,111,011
  1,248,643
  1,394,100
  1,547,231
  1,707,925
  1,876,108
  2,051,759
  2,234,905
  2,425,624
  2,624,047
  2,830,356
  3,044,786
  3,267,616
  3,499,178
Debt-to-equity ratio
  0.870
  0.940
  0.980
  1.010
  1.020
  1.040
  1.050
  1.050
  1.060
  1.060
  1.060
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
Adjusted equity ratio
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481
  0.481

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,992
  3,387
  5,219
  7,563
  10,491
  14,068
  18,350
  23,384
  29,204
  35,835
  44,569
  52,849
  61,952
  71,865
  82,575
  94,063
  106,311
  119,301
  133,016
  147,444
  162,574
  178,400
  194,922
  212,143
  230,071
  248,720
  268,107
  288,256
  309,194
  330,952
Depreciation, amort., depletion, $m
  3,360
  4,080
  5,032
  6,254
  7,787
  9,667
  11,926
  14,590
  17,680
  21,209
  23,434
  27,863
  32,742
  38,066
  43,827
  50,016
  56,623
  63,637
  71,051
  78,855
  87,045
  95,616
  104,568
  113,902
  123,622
  133,735
  144,250
  155,178
  166,535
  178,336
Funds from operations, $m
  5,352
  7,467
  10,250
  13,817
  18,278
  23,735
  30,276
  37,974
  46,884
  57,044
  68,003
  80,712
  94,694
  109,932
  126,403
  144,080
  162,934
  182,938
  204,067
  226,299
  249,618
  274,016
  299,490
  326,045
  353,693
  382,455
  412,357
  443,434
  475,728
  509,288
Change in working capital, $m
  156
  212
  280
  360
  451
  553
  665
  784
  910
  1,039
  1,171
  1,304
  1,436
  1,567
  1,696
  1,822
  1,945
  2,065
  2,182
  2,298
  2,411
  2,523
  2,635
  2,748
  2,862
  2,977
  3,095
  3,217
  3,343
  3,474
Cash from operations, $m
  5,195
  7,255
  9,970
  13,457
  17,827
  23,182
  29,611
  37,190
  45,974
  56,005
  66,831
  79,408
  93,258
  108,364
  124,707
  142,258
  160,989
  180,873
  201,884
  224,001
  247,207
  271,493
  296,855
  323,297
  350,832
  379,478
  409,261
  440,217
  472,385
  505,814
Maintenance CAPEX, $m
  -1,075
  -1,606
  -2,327
  -3,278
  -4,500
  -6,034
  -7,914
  -10,172
  -12,836
  -15,926
  -19,456
  -23,434
  -27,863
  -32,742
  -38,066
  -43,827
  -50,016
  -56,623
  -63,637
  -71,051
  -78,855
  -87,045
  -95,616
  -104,568
  -113,902
  -123,622
  -133,735
  -144,250
  -155,178
  -166,535
New CAPEX, $m
  -5,306
  -7,207
  -9,512
  -12,225
  -15,331
  -18,800
  -22,588
  -26,640
  -30,897
  -35,296
  -39,780
  -44,294
  -48,793
  -53,240
  -57,611
  -61,889
  -66,066
  -70,144
  -74,132
  -78,044
  -81,898
  -85,715
  -89,521
  -93,341
  -97,200
  -101,127
  -105,146
  -109,284
  -113,566
  -118,016
Cash from investing activities, $m
  -6,381
  -8,813
  -11,839
  -15,503
  -19,831
  -24,834
  -30,502
  -36,812
  -43,733
  -51,222
  -59,236
  -67,728
  -76,656
  -85,982
  -95,677
  -105,716
  -116,082
  -126,767
  -137,769
  -149,095
  -160,753
  -172,760
  -185,137
  -197,909
  -211,102
  -224,749
  -238,881
  -253,534
  -268,744
  -284,551
Free cash flow, $m
  -1,186
  -1,557
  -1,869
  -2,046
  -2,004
  -1,652
  -890
  377
  2,241
  4,783
  7,596
  11,681
  16,602
  22,382
  29,029
  36,542
  44,907
  54,106
  64,115
  74,907
  86,455
  98,733
  111,717
  125,388
  139,729
  154,728
  170,380
  186,683
  203,641
  221,263
Issuance/(repayment) of debt, $m
  5,376
  7,339
  9,687
  12,449
  15,612
  19,145
  23,002
  27,129
  31,463
  35,944
  40,510
  45,106
  49,688
  54,217
  58,668
  63,024
  67,278
  71,431
  75,492
  79,475
  83,400
  87,287
  91,163
  95,053
  98,983
  102,982
  107,075
  111,289
  115,649
  120,181
Issuance/(repurchase) of shares, $m
  3,004
  3,414
  3,759
  3,975
  3,978
  3,675
  2,968
  1,758
  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  
  8,380
  10,753
  13,446
  16,424
  19,590
  22,820
  25,970
  28,887
  31,463
  35,944
  40,510
  45,106
  49,688
  54,217
  58,668
  63,024
  67,278
  71,431
  75,492
  79,475
  83,400
  87,287
  91,163
  95,053
  98,983
  102,982
  107,075
  111,289
  115,649
  120,181
Total cash flow (excl. dividends), $m
  7,194
  9,196
  11,577
  14,378
  17,586
  21,168
  25,080
  29,264
  33,705
  40,727
  48,105
  56,787
  66,290
  76,599
  87,697
  99,565
  112,185
  125,537
  139,607
  154,382
  169,854
  186,020
  202,880
  220,441
  238,712
  257,710
  277,455
  297,971
  319,290
  341,444
Retained Cash Flow (-), $m
  -4,996
  -6,801
  -8,978
  -11,538
  -14,469
  -17,743
  -21,318
  -25,142
  -29,160
  -33,312
  -37,544
  -41,804
  -46,050
  -50,247
  -54,372
  -58,409
  -62,352
  -66,201
  -69,965
  -73,656
  -77,293
  -80,896
  -84,488
  -88,093
  -91,736
  -95,441
  -99,235
  -103,140
  -107,181
  -111,382
Prev. year cash balance distribution, $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 flow adjustment, $m
  61
  92
  133
  187
  256
  344
  451
  580
  731
  907
  1,109
  1,335
  1,588
  1,866
  2,169
  2,497
  2,850
  3,226
  3,626
  4,048
  4,493
  4,960
  5,448
  5,958
  6,490
  7,044
  7,620
  8,219
  8,842
  9,489
Cash available for distribution, $m
  2,198
  2,394
  2,599
  2,841
  3,117
  3,425
  3,762
  4,122
  4,545
  7,415
  10,562
  14,984
  20,240
  26,351
  33,325
  41,156
  49,833
  59,336
  69,642
  80,726
  92,561
  105,124
  118,392
  132,348
  146,976
  162,268
  178,220
  194,831
  212,108
  230,062
Discount rate, %
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.51
  9.99
  10.49
  11.01
  11.57
  12.14
  12.75
  13.39
  14.06
  14.76
  15.50
  16.27
  17.09
  17.94
  18.84
  19.78
  20.77
  21.81
  22.90
  24.04
  25.25
  26.51
  27.83
  29.22
PV of cash for distribution, $m
  2,052
  2,074
  2,073
  2,071
  2,060
  2,035
  1,991
  1,924
  1,852
  2,608
  3,169
  3,787
  4,253
  4,538
  4,633
  4,547
  4,303
  3,933
  3,477
  2,976
  2,468
  1,983
  1,543
  1,163
  848
  599
  409
  269
  171
  105
Current shareholders' claim on cash, %
  91.6
  85.6
  81.2
  78.1
  75.9
  74.4
  73.5
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1
  73.1

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 47.8
Price to Sales 6.8
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 31.2
Price to Free Cash Flow 38.2
Growth Rates
Sales Growth Rate 49.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 60.6%
Cap. Spend. - 3 Yr. Gr. Rate 2.8%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 74.3%
Total Debt to Equity 77.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.1%
Ret/ On Assets - 3 Yr. Avg. 9.5%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 10.4%
Return On Equity 9.5%
Return On Equity - 3 Yr. Avg. 13.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 59.9%
Gross Margin - 3 Yr. Avg. 63.6%
EBITDA Margin 31.2%
EBITDA Margin - 3 Yr. Avg. 32.5%
Operating Margin 20.7%
Oper. Margin - 3 Yr. Avg. 25%
Pre-Tax Margin 16.2%
Pre-Tax Margin - 3 Yr. Avg. 22.6%
Net Profit Margin 14.2%
Net Profit Margin - 3 Yr. Avg. 19.9%
Effective Tax Rate 12.2%
Eff/ Tax Rate - 3 Yr. Avg. 12%
Payout Ratio 82.8%

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 $5108 million for the last fiscal year's total revenue generated by Analog Devices. The default revenue input number comes from 2017 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 49.3% 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 7.1%, 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 70%.

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 5.4% 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 1.2%.

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 210.6%.

Life of production assets of 10 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 6.2%. 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 - $10162 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 346 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 $32.6 billion.

Management's discussion and analysis

Results of Operations

Overview
 
Fiscal Year
 
2016 over 2015
 
2015 over 2014
 
2016
 
2015
 
2014
 
  $ Change
 
% Change
 
  $ Change
 
% Change
Revenue
$
3,421,409
   
$
3,435,092
   
$
2,864,773
   
$
(13,683
)
 
 %
 
$
570,319
   
20
%
Gross Margin %
65.1
%
 
65.8
%
 
63.9
%
               
Net income
$
861,664
   
$
696,878
   
$
629,320
   
$
164,786
   
24
 %
 
$
67,558
   
11
%
Net income as a % of Revenue
25.2
%
 
20.3
%
 
22.0
%
               
Diluted EPS
$
2.76
   
$
2.20
   
$
1.98
   
$
0.56
   
25
 %
 
$
0.22
   
11
%
Proposed Acquisition of Linear Technology Corporation
On July 26, 2016, we entered into a definitive agreement (the Merger Agreement) to acquire Linear Technology Corporation (Linear), an independent manufacturer of high performance linear integrated circuits. Under the terms of the Merger Agreement, Linear stockholders will receive, for each outstanding share of Linear common stock, $46.00 in cash and 0.2321 of a share of our common stock at the closing. Based on the number of outstanding shares of Linear common stock as of July 26, 2016 and our 5-day volume weighted average price as of July 21, 2016, the value of the total consideration to be paid by us is estimated to be approximately $14.8 billion. On October 18, 2016, Linear stockholders approved the Merger Agreement. As of October 29, 2016 we had received antitrust clearance in the United States and Germany. Subsequently, we have also received antitrust clearances in Japan and Israel. We currently expect the transaction to be completed by the end of the second quarter of our fiscal year ended October 28, 2017 (fiscal 2017), subject to receipt of the remaining required regulatory clearances and the satisfaction or waiver of the other conditions contained in the Merger Agreement.
We intend to fund the acquisition with the issuance of approximately 58.0 million new shares of our common stock and approximately $11.6 billion of new short- and long-term indebtedness. The financing is supported by fully underwritten bridge financing commitments and is expected to consist of term loans and bonds. See Note 6, Acquisitions and Note 16, Debt, of the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further information.
Acquisition of Hittite Microwave Corporation (Hittite)
On July 22, 2014, we completed the acquisition of Hittite, a company that designed and developed high performance integrated circuits, modules, subsystems and instrumentation for radio frequency, microwave and millimeterwave applications. The total consideration paid to acquire Hittite was approximately $2.4 billion, financed through a combination of existing cash on hand and a 90-day term loan facility of $2.0 billion. The acquisition of Hittite is referred to as the Hittite Acquisition. See Note 6, Acquisitions, of the Notes to the Consolidated Financial Statements contained in Item 8 of this Annual Report on From 10-K for further discussion related to the Hittite Acquisition.
Revenue Trends by End Market
The following table summarizes revenue by end market. The categorization of revenue by end market is determined using a variety of data points including the technical characteristics of the product, the “sold to” customer information, the “ship to” customer information and the end customer product or application into which our product will be incorporated. As data systems for capturing and tracking this data evolve and improve, the categorization of products by end market can vary over time. When this occurs, we reclassify revenue by end market for prior periods. Such reclassifications typically do not materially change the sizing of, or the underlying trends of results within, each end market.
Automotive end market revenue increased year-over-year in fiscal 2016 primarily as a result of increased demand for our powertrain, advanced driver assistance systems, and infotainment products. The year-over-year decrease in the consumer end market in fiscal 2016 was primarily the result of lower demand for products sold into portable consumer applications.
The year-over-year increase in the industrial and communications end markets revenue in fiscal 2015 was the result of the Hittite Acquisition. Consumer end market revenue increased in fiscal 2015 as compared to fiscal 2014 as a result of increased demand for products sold into the portable sector of this end market.

[Source: Form 10-K dated 2016-11-22]

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COMPANY NEWS

▶ How an expanding tech team with Triad operations assisted in the Thai mine rescue   [Aug-16-18 02:20PM  American City Business Journals]
▶ How Mass. tech giant Analog Devices assisted in the Thai mine rescue   [11:19AM  American City Business Journals]
▶ CRYPTO: Here's why bitcoin and ether are dropping   [Aug-14-18 02:40PM  Yahoo Finance Video]
▶ How an expanding Triangle tech team assisted in the Thai mine rescue   [07:57AM  American City Business Journals]
▶ NYSE trader: Wall Street is iffy on bitcoin at best   [Aug-03-18 03:46PM  Yahoo Finance Video]
▶ [$$] Look Who's Buying Verizon and JPMorgan   [Jul-13-18 07:30AM  Barrons.com]
▶ Analog Devices opens innovation garage in downtown Boston   [Jun-20-18 12:05PM  American City Business Journals]
▶ Analog Devices Welcomes Karen Golz to Board of Directors   [Jun-14-18 08:00AM  Business Wire]
▶ BofA Highlights The Most 'Underowned' Semi Stocks   [Jun-12-18 10:38AM  Benzinga]
▶ Analog Devices to expand, move HQ to Wilmington   [Jun-05-18 11:00PM  American City Business Journals]
▶ Analog Devices Hits Buy Zone On Beat-And-Raise Report   [May-30-18 04:27PM  Investor's Business Daily]
▶ Analog Devices: Fiscal 2Q Earnings Snapshot   [08:07AM  Associated Press]
▶ Analog Devices Q2 Earnings Preview   [May-29-18 02:21PM  Benzinga]
▶ At $94.77, Is It Time To Buy Analog Devices Inc (NASDAQ:ADI)?   [May-17-18 08:03PM  Simply Wall St.]
▶ Does Analog Devices Incs (NASDAQ:ADI) PE Ratio Warrant A Sell?   [May-09-18 03:39PM  Simply Wall St.]
▶ Better Buy: NVIDIA vs. Analog Devices   [May-01-18 08:10PM  Motley Fool]
▶ Analog Devices Opens New Bengaluru Facility   [02:30AM  Business Wire]
▶ 'Double Ordering' Hurts Chip Cos.: Morgan Stanley   [Apr-20-18 02:35PM  Investopedia]
▶ Ray Stata invests in Westwood nanomaterial manufacturer   [Apr-18-18 02:55PM  American City Business Journals]
▶ Why Analog Devices Inc (NASDAQ:ADI) Is A Dividend Rockstar   [Apr-04-18 02:07PM  Simply Wall St.]
▶ AI Stock And Alibaba IoT Partner With 217% Growth Tests Buy Zone   [Mar-22-18 04:17PM  Investor's Business Daily]
▶ Apple is secretly creating its own microLED screens: Bloomberg   [Mar-19-18 10:37AM  Yahoo Finance Video]
▶ [$$] Why Broadcom's Plan B Looks Complicated   [Mar-17-18 12:01AM  Barrons.com]
▶ Why Broadcom Ltd Stock Is a Solid Buy Now   [Mar-15-18 09:31AM  InvestorPlace]
▶ Analog Devices' Stock Charts Are Still Not That Impressive   [Mar-14-18 12:32PM  TheStreet.com]
▶ Micron Leads Chip Stocks Higher; Analog Devices, Microchip Tech Break Out   [Mar-12-18 04:56PM  Investor's Business Daily]
▶ Analog Devices Stock Gets Price-Target Hikes, But Continues Falling   [Mar-01-18 05:10PM  Investor's Business Daily]
▶ Analog Devices Beats First-Quarter Targets, Guides Higher   [Feb-28-18 04:08PM  Investor's Business Daily]
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