Intrinsic value of InterDigital, Inc. - IDCC

Previous Close

$68.49

  Intrinsic Value

$78.61

stock screener

  Rating & Target

hold

+15%

Previous close

$68.49

 
Intrinsic value

$78.61

 
Up/down potential

+15%

 
Rating

hold

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

Revenue (in 0001), $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 2.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  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
  313
  320
  329
  338
  348
  359
  372
  385
  399
  414
  431
  448
  467
  487
  508
  530
  553
  578
  605
  632
  662
  693
  725
  760
  796
  834
  874
  916
  960
  1,007
Variable operating expenses, $m
  136
  139
  142
  146
  151
  155
  161
  166
  172
  179
  185
  193
  201
  209
  218
  228
  238
  249
  260
  272
  284
  298
  312
  326
  342
  358
  376
  394
  413
  433
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
  136
  139
  142
  146
  151
  155
  161
  166
  172
  179
  185
  193
  201
  209
  218
  228
  238
  249
  260
  272
  284
  298
  312
  326
  342
  358
  376
  394
  413
  433
Operating income, $m
  178
  182
  186
  192
  197
  204
  211
  218
  227
  235
  246
  256
  266
  278
  289
  302
  316
  330
  345
  361
  377
  395
  414
  433
  454
  475
  498
  522
  548
  574
EBITDA, $m
  213
  218
  223
  230
  237
  244
  253
  262
  271
  282
  293
  305
  317
  331
  345
  360
  376
  393
  411
  430
  450
  471
  493
  516
  541
  567
  594
  623
  653
  685
Interest expense (income), $m
  8
  17
  18
  19
  20
  21
  22
  24
  25
  27
  28
  30
  32
  34
  37
  39
  42
  45
  47
  50
  54
  57
  61
  65
  69
  73
  77
  82
  87
  92
  97
Earnings before tax, $m
  160
  164
  168
  172
  177
  182
  187
  193
  200
  207
  215
  223
  232
  241
  250
  260
  271
  282
  294
  307
  320
  334
  349
  365
  381
  398
  416
  436
  456
  477
Tax expense, $m
  43
  44
  45
  46
  48
  49
  51
  52
  54
  56
  58
  60
  63
  65
  68
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  112
  118
  123
  129
Net income, $m
  117
  120
  122
  125
  129
  133
  137
  141
  146
  151
  157
  163
  169
  176
  183
  190
  198
  206
  215
  224
  234
  244
  255
  266
  278
  291
  304
  318
  333
  348

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
  877
  897
  920
  946
  975
  1,006
  1,041
  1,078
  1,118
  1,161
  1,207
  1,256
  1,308
  1,363
  1,422
  1,484
  1,550
  1,620
  1,694
  1,771
  1,854
  1,940
  2,031
  2,128
  2,229
  2,336
  2,448
  2,566
  2,690
  2,821
Adjusted assets (=assets-cash), $m
  877
  897
  920
  946
  975
  1,006
  1,041
  1,078
  1,118
  1,161
  1,207
  1,256
  1,308
  1,363
  1,422
  1,484
  1,550
  1,620
  1,694
  1,771
  1,854
  1,940
  2,031
  2,128
  2,229
  2,336
  2,448
  2,566
  2,690
  2,821
Revenue / Adjusted assets
  0.357
  0.357
  0.358
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
Average production assets, $m
  209
  214
  220
  226
  233
  240
  249
  257
  267
  277
  288
  300
  312
  326
  340
  354
  370
  387
  404
  423
  443
  463
  485
  508
  532
  558
  585
  613
  642
  674
Working capital, $m
  -103
  -105
  -108
  -111
  -115
  -118
  -122
  -127
  -131
  -136
  -142
  -147
  -154
  -160
  -167
  -174
  -182
  -190
  -199
  -208
  -218
  -228
  -239
  -250
  -262
  -274
  -287
  -301
  -316
  -331
Total debt, $m
  331
  347
  366
  387
  410
  436
  464
  494
  527
  561
  599
  639
  681
  726
  774
  825
  878
  935
  995
  1,058
  1,125
  1,195
  1,269
  1,348
  1,430
  1,517
  1,608
  1,704
  1,805
  1,911
Total liabilities, $m
  713
  730
  748
  769
  793
  818
  846
  876
  909
  944
  981
  1,021
  1,063
  1,108
  1,156
  1,207
  1,260
  1,317
  1,377
  1,440
  1,507
  1,577
  1,652
  1,730
  1,812
  1,899
  1,990
  2,086
  2,187
  2,293
Total equity, $m
  164
  168
  172
  177
  182
  188
  195
  202
  209
  217
  226
  235
  245
  255
  266
  278
  290
  303
  317
  331
  347
  363
  380
  398
  417
  437
  458
  480
  503
  528
Total liabilities and equity, $m
  877
  898
  920
  946
  975
  1,006
  1,041
  1,078
  1,118
  1,161
  1,207
  1,256
  1,308
  1,363
  1,422
  1,485
  1,550
  1,620
  1,694
  1,771
  1,854
  1,940
  2,032
  2,128
  2,229
  2,336
  2,448
  2,566
  2,690
  2,821
Debt-to-equity ratio
  2.020
  2.070
  2.130
  2.190
  2.250
  2.320
  2.380
  2.450
  2.520
  2.590
  2.650
  2.720
  2.780
  2.850
  2.910
  2.970
  3.030
  3.090
  3.140
  3.190
  3.250
  3.290
  3.340
  3.390
  3.430
  3.470
  3.510
  3.550
  3.590
  3.620
Adjusted equity ratio
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187
  0.187

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  117
  120
  122
  125
  129
  133
  137
  141
  146
  151
  157
  163
  169
  176
  183
  190
  198
  206
  215
  224
  234
  244
  255
  266
  278
  291
  304
  318
  333
  348
Depreciation, amort., depletion, $m
  35
  36
  37
  38
  39
  40
  42
  43
  45
  46
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  73
  76
  80
  83
  87
  91
  96
  100
  105
  110
Funds from operations, $m
  152
  156
  159
  164
  168
  173
  178
  184
  191
  197
  204
  212
  220
  229
  238
  248
  259
  270
  281
  293
  306
  320
  334
  349
  365
  382
  400
  418
  438
  459
Change in working capital, $m
  -2
  -2
  -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
Cash from operations, $m
  154
  158
  162
  167
  171
  177
  183
  189
  195
  202
  210
  218
  226
  236
  245
  255
  266
  278
  290
  303
  316
  330
  345
  361
  377
  395
  413
  432
  453
  474
Maintenance CAPEX, $m
  -34
  -34
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -73
  -76
  -80
  -83
  -87
  -91
  -96
  -100
  -105
New CAPEX, $m
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -71
  -74
  -78
  -81
  -85
  -89
  -94
  -98
  -103
  -107
  -112
  -118
  -124
  -130
  -136
Free cash flow, $m
  117
  119
  121
  124
  128
  131
  135
  139
  144
  148
  153
  159
  165
  171
  178
  185
  192
  200
  209
  218
  227
  237
  247
  258
  270
  282
  295
  308
  322
  337
Issuance/(repayment) of debt, $m
  14
  16
  19
  21
  23
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  14
  16
  19
  21
  23
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
Total cash flow (excl. dividends), $m
  131
  135
  140
  145
  151
  157
  163
  169
  176
  183
  191
  199
  207
  216
  226
  236
  246
  257
  269
  281
  294
  307
  321
  336
  352
  369
  386
  404
  423
  444
Retained Cash Flow (-), $m
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
  766
  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
  893
  132
  136
  141
  146
  151
  156
  162
  169
  175
  182
  190
  198
  206
  215
  224
  234
  244
  255
  266
  278
  291
  304
  318
  333
  349
  365
  382
  400
  419
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
  856
  120
  118
  116
  113
  109
  106
  101
  97
  92
  86
  81
  75
  69
  63
  57
  51
  45
  39
  34
  29
  24
  20
  16
  13
  10
  8
  6
  4
  3
Current shareholders' claim on cash, %
  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
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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, Inc. (IDCC)

Valuation Ratios
P/E Ratio 7.6
Price to Sales 3.5
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 5.5
Price to Free Cash Flow 6.1
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 $307 million for the last fiscal year's total revenue generated by InterDigital, Inc.. The default revenue input number comes from 0001 income statement of InterDigital, Inc.. 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, Inc., 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, Inc..
    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 43.3%.

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, Inc..

Corporate tax rate of 27% is the nominal tax rate for InterDigital, Inc.. 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 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 IDCC are equal to 66.9%.

Life of production assets of 6.1 years is the average useful life of capital assets used in InterDigital, Inc. 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 -32.9%. 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 - $927.025 million for InterDigital, Inc. - 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 32.687 million for InterDigital, Inc. 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, Inc. at the current share price and the inputted number of shares is $2.2 billion.

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