Intrinsic value of Semtech Corporation - SMTC

Previous Close

$43.32

  Intrinsic Value

$26.62

stock screener

  Rating & Target

sell

-39%

Previous close

$43.32

 
Intrinsic value

$26.62

 
Up/down potential

-39%

 
Rating

sell

We calculate the intrinsic value of SMTC 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 2.9

 

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, %
  15.50
  14.45
  13.51
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.30
  7.97
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
Revenue, $m
  679
  777
  882
  994
  1,112
  1,237
  1,367
  1,504
  1,648
  1,797
  1,953
  2,115
  2,283
  2,458
  2,640
  2,829
  3,026
  3,230
  3,443
  3,664
  3,893
  4,133
  4,382
  4,642
  4,913
  5,196
  5,491
  5,799
  6,121
  6,457
Variable operating expenses, $m
  568
  644
  725
  812
  904
  1,001
  1,102
  1,209
  1,320
  1,436
  1,517
  1,642
  1,773
  1,909
  2,051
  2,197
  2,350
  2,509
  2,674
  2,845
  3,024
  3,210
  3,403
  3,605
  3,816
  4,035
  4,264
  4,504
  4,754
  5,015
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
  568
  644
  725
  812
  904
  1,001
  1,102
  1,209
  1,320
  1,436
  1,517
  1,642
  1,773
  1,909
  2,051
  2,197
  2,350
  2,509
  2,674
  2,845
  3,024
  3,210
  3,403
  3,605
  3,816
  4,035
  4,264
  4,504
  4,754
  5,015
Operating income, $m
  111
  133
  157
  182
  208
  236
  265
  296
  328
  361
  436
  472
  510
  549
  590
  632
  676
  722
  769
  818
  870
  923
  979
  1,037
  1,097
  1,161
  1,226
  1,295
  1,367
  1,442
EBITDA, $m
  186
  213
  242
  273
  305
  339
  375
  413
  452
  493
  536
  580
  627
  675
  725
  776
  830
  886
  945
  1,005
  1,068
  1,134
  1,203
  1,274
  1,348
  1,426
  1,507
  1,591
  1,680
  1,772
Interest expense (income), $m
  6
  12
  16
  19
  23
  27
  32
  36
  41
  46
  52
  57
  63
  69
  75
  82
  89
  96
  103
  110
  118
  127
  135
  144
  153
  163
  173
  184
  195
  206
  218
Earnings before tax, $m
  99
  118
  138
  159
  181
  204
  229
  255
  282
  310
  379
  409
  441
  474
  508
  543
  580
  619
  658
  700
  743
  788
  835
  884
  934
  987
  1,043
  1,101
  1,161
  1,224
Tax expense, $m
  27
  32
  37
  43
  49
  55
  62
  69
  76
  84
  102
  111
  119
  128
  137
  147
  157
  167
  178
  189
  201
  213
  225
  239
  252
  267
  282
  297
  314
  331
Net income, $m
  72
  86
  100
  116
  132
  149
  167
  186
  206
  226
  277
  299
  322
  346
  371
  397
  424
  452
  481
  511
  542
  575
  609
  645
  682
  721
  761
  804
  848
  894

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
  1,026
  1,174
  1,333
  1,501
  1,680
  1,868
  2,066
  2,273
  2,489
  2,715
  2,950
  3,195
  3,449
  3,713
  3,988
  4,274
  4,571
  4,879
  5,200
  5,534
  5,881
  6,243
  6,620
  7,012
  7,422
  7,849
  8,294
  8,760
  9,246
  9,754
Adjusted assets (=assets-cash), $m
  1,026
  1,174
  1,333
  1,501
  1,680
  1,868
  2,066
  2,273
  2,489
  2,715
  2,950
  3,195
  3,449
  3,713
  3,988
  4,274
  4,571
  4,879
  5,200
  5,534
  5,881
  6,243
  6,620
  7,012
  7,422
  7,849
  8,294
  8,760
  9,246
  9,754
Revenue / Adjusted assets
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
  0.662
Average production assets, $m
  364
  417
  473
  533
  596
  663
  733
  806
  883
  963
  1,047
  1,134
  1,224
  1,318
  1,415
  1,517
  1,622
  1,731
  1,845
  1,964
  2,087
  2,215
  2,349
  2,488
  2,633
  2,785
  2,943
  3,108
  3,281
  3,461
Working capital, $m
  49
  56
  64
  72
  80
  89
  98
  108
  119
  129
  141
  152
  164
  177
  190
  204
  218
  233
  248
  264
  280
  298
  316
  334
  354
  374
  395
  418
  441
  465
Total debt, $m
  289
  357
  429
  506
  587
  673
  763
  857
  956
  1,059
  1,166
  1,278
  1,394
  1,515
  1,640
  1,770
  1,905
  2,046
  2,192
  2,345
  2,503
  2,668
  2,840
  3,019
  3,205
  3,400
  3,603
  3,816
  4,037
  4,269
Total liabilities, $m
  468
  535
  608
  685
  766
  852
  942
  1,036
  1,135
  1,238
  1,345
  1,457
  1,573
  1,693
  1,819
  1,949
  2,084
  2,225
  2,371
  2,524
  2,682
  2,847
  3,019
  3,198
  3,384
  3,579
  3,782
  3,994
  4,216
  4,448
Total equity, $m
  558
  639
  725
  817
  914
  1,016
  1,124
  1,236
  1,354
  1,477
  1,605
  1,738
  1,876
  2,020
  2,170
  2,325
  2,487
  2,654
  2,829
  3,011
  3,199
  3,396
  3,601
  3,815
  4,037
  4,270
  4,512
  4,765
  5,030
  5,306
Total liabilities and equity, $m
  1,026
  1,174
  1,333
  1,502
  1,680
  1,868
  2,066
  2,272
  2,489
  2,715
  2,950
  3,195
  3,449
  3,713
  3,989
  4,274
  4,571
  4,879
  5,200
  5,535
  5,881
  6,243
  6,620
  7,013
  7,421
  7,849
  8,294
  8,759
  9,246
  9,754
Debt-to-equity ratio
  0.520
  0.560
  0.590
  0.620
  0.640
  0.660
  0.680
  0.690
  0.710
  0.720
  0.730
  0.740
  0.740
  0.750
  0.760
  0.760
  0.770
  0.770
  0.780
  0.780
  0.780
  0.790
  0.790
  0.790
  0.790
  0.800
  0.800
  0.800
  0.800
  0.800
Adjusted equity ratio
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544
  0.544

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  72
  86
  100
  116
  132
  149
  167
  186
  206
  226
  277
  299
  322
  346
  371
  397
  424
  452
  481
  511
  542
  575
  609
  645
  682
  721
  761
  804
  848
  894
Depreciation, amort., depletion, $m
  75
  80
  85
  91
  97
  103
  110
  117
  124
  132
  100
  108
  117
  125
  135
  144
  154
  165
  176
  187
  199
  211
  224
  237
  251
  265
  280
  296
  312
  330
Funds from operations, $m
  147
  166
  186
  207
  229
  252
  277
  303
  330
  358
  376
  407
  438
  471
  506
  541
  578
  616
  656
  698
  741
  786
  833
  882
  933
  986
  1,042
  1,100
  1,160
  1,223
Change in working capital, $m
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
Cash from operations, $m
  141
  159
  178
  199
  221
  244
  268
  293
  320
  347
  365
  395
  426
  459
  492
  528
  564
  602
  641
  682
  725
  769
  815
  863
  913
  966
  1,020
  1,077
  1,137
  1,199
Maintenance CAPEX, $m
  -30
  -35
  -40
  -45
  -51
  -57
  -63
  -70
  -77
  -84
  -92
  -100
  -108
  -117
  -125
  -135
  -144
  -154
  -165
  -176
  -187
  -199
  -211
  -224
  -237
  -251
  -265
  -280
  -296
  -312
New CAPEX, $m
  -49
  -53
  -56
  -60
  -63
  -67
  -70
  -73
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -101
  -105
  -109
  -114
  -118
  -123
  -128
  -134
  -139
  -145
  -152
  -158
  -165
  -172
  -180
Cash from investing activities, $m
  -79
  -88
  -96
  -105
  -114
  -124
  -133
  -143
  -154
  -164
  -175
  -187
  -198
  -211
  -223
  -236
  -249
  -263
  -279
  -294
  -310
  -327
  -345
  -363
  -382
  -403
  -423
  -445
  -468
  -492
Free cash flow, $m
  62
  72
  82
  94
  106
  120
  134
  150
  166
  183
  190
  209
  228
  248
  269
  291
  314
  338
  362
  388
  414
  442
  471
  500
  531
  563
  597
  632
  668
  706
Issuance/(repayment) of debt, $m
  62
  68
  72
  77
  81
  86
  90
  94
  99
  103
  107
  112
  116
  121
  125
  130
  135
  141
  146
  152
  158
  165
  172
  179
  187
  195
  203
  212
  222
  232
Issuance/(repurchase) of shares, $m
  2
  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  
  64
  68
  72
  77
  81
  86
  90
  94
  99
  103
  107
  112
  116
  121
  125
  130
  135
  141
  146
  152
  158
  165
  172
  179
  187
  195
  203
  212
  222
  232
Total cash flow (excl. dividends), $m
  126
  139
  154
  171
  188
  206
  225
  244
  265
  286
  297
  320
  344
  369
  395
  422
  450
  479
  509
  540
  573
  607
  642
  679
  718
  758
  800
  844
  890
  938
Retained Cash Flow (-), $m
  -75
  -81
  -86
  -92
  -97
  -102
  -108
  -113
  -118
  -123
  -128
  -133
  -138
  -144
  -150
  -155
  -161
  -168
  -175
  -182
  -189
  -197
  -205
  -214
  -223
  -232
  -242
  -253
  -264
  -276
Prev. year cash balance distribution, $m
  182
  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
  234
  59
  68
  79
  91
  103
  117
  132
  147
  163
  169
  187
  206
  225
  245
  266
  288
  311
  334
  359
  384
  410
  437
  466
  495
  526
  558
  591
  626
  662
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
  224
  54
  59
  65
  70
  75
  79
  82
  84
  86
  80
  80
  78
  76
  72
  68
  63
  57
  51
  46
  40
  34
  29
  24
  19
  15
  12
  9
  7
  5
Current shareholders' claim on cash, %
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9
  99.9

Semtech Corporation is a supplier of analog and mixed-signal semiconductor products. The Company designs, develops and markets a range of products for commercial applications, which are sold into the enterprise computing, communications, consumer and industrial end-markets. Its product lines include Signal Integrity, Protection, Wireless and Sensing, and Power and High-Reliability. Applications for the industrial market include video broadcast studio equipment, automated meter reading, wireless charging, military and aerospace, medical, security systems, automotive, Internet of Things, industrial and home automation, and video security and surveillance. Enterprise computing end-markets include desktops, notebooks, servers, graphic boards, printers, datacenter related equipment and passive optical networks. Communications end-market applications include wireless base stations, carrier networks, switches and routers, cable modems, signal conditioners and wireless local area network.

FINANCIAL RATIOS  of  Semtech Corporation (SMTC)

Valuation Ratios
P/E Ratio 51.8
Price to Sales 5.2
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 24.2
Price to Free Cash Flow 33.5
Growth Rates
Sales Growth Rate 11%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 153.8%
Cap. Spend. - 3 Yr. Gr. Rate -4.2%
Financial Strength
Quick Ratio 21
Current Ratio 0.1
LT Debt to Equity 37.5%
Total Debt to Equity 39.8%
Interest Coverage 13
Management Effectiveness
Return On Assets 6.2%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 6.7%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 9.7%
Return On Equity - 3 Yr. Avg. 5.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 59.7%
Gross Margin - 3 Yr. Avg. 59.7%
EBITDA Margin 23.2%
EBITDA Margin - 3 Yr. Avg. 19.4%
Operating Margin 15.4%
Oper. Margin - 3 Yr. Avg. 9.7%
Pre-Tax Margin 13.4%
Pre-Tax Margin - 3 Yr. Avg. 8%
Net Profit Margin 10.1%
Net Profit Margin - 3 Yr. Avg. 5.9%
Effective Tax Rate 24.7%
Eff/ Tax Rate - 3 Yr. Avg. 29%
Payout Ratio 0%

SMTC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SMTC stock intrinsic value calculation we used $588 million for the last fiscal year's total revenue generated by Semtech Corporation. The default revenue input number comes from 0001 income statement of Semtech Corporation. 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 SMTC stock valuation model: a) initial revenue growth rate of 15.5% 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 SMTC is calculated based on our internal credit rating of Semtech Corporation, 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 Semtech Corporation.
    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 SMTC stock the variable cost ratio is equal to 84.5%.

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 SMTC 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 Semtech Corporation.

Corporate tax rate of 27% is the nominal tax rate for Semtech Corporation. 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 SMTC 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 SMTC are equal to 53.6%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Semtech Corporation 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 SMTC is equal to 7.2%. 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 - $665.013 million for Semtech Corporation - 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 65.792 million for Semtech Corporation 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 Semtech Corporation at the current share price and the inputted number of shares is $2.9 billion.

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