Intrinsic value of InterDigital - IDCC

Previous Close

$79.45

  Intrinsic Value

$55.83

stock screener

  Rating & Target

sell

-30%

Previous close

$79.45

 
Intrinsic value

$55.83

 
Up/down potential

-30%

 
Rating

sell

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

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
  679
  695
  713
  733
  755
  779
  806
  835
  866
  899
  934
  972
  1,013
  1,056
  1,101
  1,149
  1,201
  1,255
  1,312
  1,372
  1,436
  1,503
  1,573
  1,648
  1,726
  1,809
  1,896
  1,987
  2,083
  2,185
Variable operating expenses, $m
 
  359
  368
  377
  388
  399
  412
  426
  442
  458
  476
  494
  514
  536
  558
  583
  608
  635
  664
  694
  726
  759
  795
  832
  872
  913
  957
  1,003
  1,051
  1,102
  1,156
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
  359
  368
  377
  388
  399
  412
  426
  442
  458
  476
  494
  514
  536
  558
  583
  608
  635
  664
  694
  726
  759
  795
  832
  872
  913
  957
  1,003
  1,051
  1,102
  1,156
Operating income, $m
  437
  320
  327
  336
  345
  356
  367
  380
  393
  408
  423
  440
  458
  477
  497
  519
  541
  565
  591
  618
  646
  676
  708
  741
  776
  813
  852
  893
  936
  981
  1,029
EBITDA, $m
  490
  374
  383
  392
  403
  416
  429
  444
  460
  477
  495
  514
  535
  558
  581
  606
  633
  661
  691
  722
  755
  790
  827
  866
  907
  950
  996
  1,044
  1,094
  1,147
  1,203
Interest expense (income), $m
  8
  10
  0
  0
  1
  2
  3
  4
  4
  6
  7
  8
  9
  11
  12
  14
  15
  17
  19
  21
  23
  25
  28
  30
  33
  35
  38
  41
  44
  48
  51
Earnings before tax, $m
  422
  310
  327
  335
  344
  354
  364
  376
  389
  402
  417
  432
  449
  466
  485
  505
  526
  548
  572
  597
  623
  651
  680
  711
  743
  778
  814
  852
  892
  933
  978
Tax expense, $m
  117
  84
  88
  91
  93
  96
  98
  102
  105
  109
  113
  117
  121
  126
  131
  136
  142
  148
  154
  161
  168
  176
  184
  192
  201
  210
  220
  230
  241
  252
  264
Net income, $m
  309
  227
  239
  245
  251
  258
  266
  275
  284
  294
  304
  316
  328
  340
  354
  369
  384
  400
  418
  436
  455
  475
  496
  519
  543
  568
  594
  622
  651
  681
  714

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
  791
  809
  830
  853
  879
  907
  938
  972
  1,008
  1,046
  1,088
  1,132
  1,179
  1,229
  1,282
  1,338
  1,398
  1,461
  1,527
  1,597
  1,671
  1,749
  1,832
  1,918
  2,010
  2,106
  2,207
  2,313
  2,425
  2,543
Adjusted assets (=assets-cash), $m
  775
  791
  809
  830
  853
  879
  907
  938
  972
  1,008
  1,046
  1,088
  1,132
  1,179
  1,229
  1,282
  1,338
  1,398
  1,461
  1,527
  1,597
  1,671
  1,749
  1,832
  1,918
  2,010
  2,106
  2,207
  2,313
  2,425
  2,543
Revenue / Adjusted assets
  0.859
  0.858
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.858
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
  0.859
Average production assets, $m
  307
  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
Working capital, $m
  796
  -160
  -164
  -168
  -173
  -178
  -184
  -190
  -197
  -204
  -212
  -221
  -229
  -239
  -249
  -260
  -271
  -283
  -296
  -310
  -324
  -339
  -355
  -371
  -389
  -407
  -427
  -447
  -469
  -492
  -516
Total debt, $m
  272
  -4
  12
  31
  52
  75
  101
  128
  159
  191
  226
  263
  303
  345
  390
  438
  488
  542
  598
  658
  721
  788
  858
  932
  1,010
  1,093
  1,179
  1,270
  1,366
  1,467
  1,573
Total liabilities, $m
  988
  712
  728
  747
  768
  791
  817
  844
  875
  907
  942
  979
  1,019
  1,061
  1,106
  1,154
  1,204
  1,258
  1,314
  1,374
  1,437
  1,504
  1,574
  1,648
  1,726
  1,809
  1,895
  1,986
  2,082
  2,183
  2,289
Total equity, $m
  740
  79
  81
  83
  85
  88
  91
  94
  97
  101
  105
  109
  113
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  183
  192
  201
  211
  221
  231
  243
  254
Total liabilities and equity, $m
  1,728
  791
  809
  830
  853
  879
  908
  938
  972
  1,008
  1,047
  1,088
  1,132
  1,179
  1,229
  1,282
  1,338
  1,398
  1,460
  1,527
  1,597
  1,671
  1,749
  1,831
  1,918
  2,010
  2,106
  2,207
  2,313
  2,426
  2,543
Debt-to-equity ratio
  0.368
  -0.050
  0.150
  0.370
  0.610
  0.850
  1.110
  1.370
  1.630
  1.900
  2.160
  2.420
  2.670
  2.930
  3.170
  3.410
  3.650
  3.880
  4.100
  4.310
  4.520
  4.720
  4.910
  5.090
  5.270
  5.440
  5.600
  5.760
  5.900
  6.050
  6.180
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
  227
  239
  245
  251
  258
  266
  275
  284
  294
  304
  316
  328
  340
  354
  369
  384
  400
  418
  436
  455
  475
  496
  519
  543
  568
  594
  622
  651
  681
  714
Depreciation, amort., depletion, $m
  53
  54
  55
  57
  58
  60
  62
  64
  66
  69
  71
  74
  77
  80
  84
  88
  91
  95
  100
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  166
  174
Funds from operations, $m
  251
  281
  294
  301
  309
  318
  328
  339
  350
  362
  376
  390
  405
  421
  438
  456
  475
  496
  517
  540
  564
  589
  616
  644
  674
  705
  738
  772
  809
  847
  887
Change in working capital, $m
  -180
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -22
  -23
  -24
Cash from operations, $m
  431
  284
  298
  306
  314
  324
  334
  345
  357
  370
  383
  398
  414
  431
  448
  467
  487
  508
  530
  553
  578
  604
  632
  661
  691
  723
  757
  793
  830
  870
  911
Maintenance CAPEX, $m
  0
  -53
  -54
  -55
  -57
  -58
  -60
  -62
  -64
  -66
  -69
  -71
  -74
  -77
  -80
  -84
  -88
  -91
  -95
  -100
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -158
  -166
New CAPEX, $m
  -43
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
Cash from investing activities, $m
  -219
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -91
  -96
  -100
  -105
  -110
  -115
  -120
  -126
  -132
  -138
  -145
  -152
  -159
  -167
  -175
  -184
  -193
  -202
  -213
Free cash flow, $m
  212
  225
  237
  242
  248
  255
  263
  271
  280
  289
  299
  310
  322
  335
  348
  362
  377
  393
  410
  427
  446
  466
  487
  509
  532
  556
  582
  609
  637
  667
  699
Issuance/(repayment) of debt, $m
  -230
  -276
  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
  -64
  65
  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
  -211
  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
  -75
  14
  253
  261
  269
  278
  288
  299
  310
  322
  334
  348
  362
  377
  393
  410
  428
  446
  466
  487
  509
  533
  557
  583
  610
  638
  669
  700
  733
  768
  805
Retained Cash Flow (-), $m
  -229
  -292
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Prev. year cash balance distribution, $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
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
 
  675
  251
  259
  267
  276
  285
  295
  306
  318
  330
  343
  357
  372
  388
  404
  422
  440
  460
  481
  502
  525
  549
  575
  601
  629
  659
  690
  723
  757
  793
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
 
  647
  230
  225
  220
  214
  207
  200
  191
  183
  173
  163
  153
  142
  130
  119
  107
  96
  85
  74
  64
  54
  46
  38
  31
  24
  19
  15
  11
  8
  6
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

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 8.8
Price to Sales 4.1
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 7
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 $666 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 52.9%.

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 3.5% 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 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 46.1%.

Life of production assets of 5.8 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 -23.6%. 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 - $740 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 34.8 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 $2.8 billion.

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COMPANY NEWS

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▶ InterDigital posts 3Q profit   [Oct-26-17 08:43AM  Associated Press]
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▶ InterDigital Issues Revenue Guidance for Third Quarter 2017   [Aug-22-17 08:30AM  GlobeNewswire]
▶ InterDigital Joins 5TONIC Lab   [02:30AM  GlobeNewswire]
▶ InterDigital posts 2Q profit   [Jul-27-17 10:33PM  Associated Press]
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Financial statements of IDCC
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