Intrinsic value of Teradyne, Inc. - TER

Previous Close

$56.08

  Intrinsic Value

$45.88

stock screener

  Rating & Target

hold

-18%

Previous close

$56.08

 
Intrinsic value

$45.88

 
Up/down potential

-18%

 
Rating

hold

We calculate the intrinsic value of TER 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 9.7

 

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, %
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
Revenue, $m
  2,277
  2,461
  2,652
  2,850
  3,056
  3,270
  3,493
  3,725
  3,965
  4,216
  4,477
  4,748
  5,031
  5,326
  5,634
  5,955
  6,290
  6,641
  7,006
  7,389
  7,789
  8,207
  8,645
  9,103
  9,583
  10,086
  10,612
  11,164
  11,742
  12,348
Variable operating expenses, $m
  1,713
  1,847
  1,986
  2,131
  2,281
  2,438
  2,600
  2,769
  2,945
  3,128
  3,267
  3,466
  3,672
  3,887
  4,112
  4,346
  4,591
  4,847
  5,114
  5,393
  5,685
  5,990
  6,310
  6,644
  6,995
  7,361
  7,746
  8,148
  8,570
  9,012
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
  1,713
  1,847
  1,986
  2,131
  2,281
  2,438
  2,600
  2,769
  2,945
  3,128
  3,267
  3,466
  3,672
  3,887
  4,112
  4,346
  4,591
  4,847
  5,114
  5,393
  5,685
  5,990
  6,310
  6,644
  6,995
  7,361
  7,746
  8,148
  8,570
  9,012
Operating income, $m
  565
  614
  666
  719
  775
  833
  893
  955
  1,020
  1,088
  1,209
  1,283
  1,359
  1,439
  1,522
  1,609
  1,699
  1,794
  1,893
  1,996
  2,104
  2,217
  2,335
  2,459
  2,589
  2,725
  2,867
  3,016
  3,172
  3,336
EBITDA, $m
  701
  758
  816
  877
  941
  1,007
  1,075
  1,147
  1,221
  1,298
  1,378
  1,462
  1,549
  1,640
  1,734
  1,833
  1,936
  2,044
  2,157
  2,275
  2,398
  2,527
  2,661
  2,802
  2,950
  3,105
  3,267
  3,437
  3,615
  3,801
Interest expense (income), $m
  0
  32
  40
  49
  58
  67
  77
  87
  98
  109
  120
  132
  144
  157
  171
  185
  199
  214
  230
  247
  264
  282
  301
  321
  342
  363
  386
  410
  435
  461
  488
Earnings before tax, $m
  533
  574
  617
  661
  708
  756
  806
  858
  912
  968
  1,077
  1,138
  1,202
  1,268
  1,337
  1,410
  1,485
  1,564
  1,646
  1,732
  1,822
  1,916
  2,014
  2,118
  2,225
  2,339
  2,457
  2,581
  2,711
  2,847
Tax expense, $m
  144
  155
  167
  179
  191
  204
  218
  232
  246
  261
  291
  307
  325
  342
  361
  381
  401
  422
  444
  468
  492
  517
  544
  572
  601
  631
  663
  697
  732
  769
Net income, $m
  389
  419
  450
  483
  517
  552
  588
  626
  666
  707
  786
  831
  877
  926
  976
  1,029
  1,084
  1,141
  1,202
  1,264
  1,330
  1,399
  1,471
  1,546
  1,625
  1,707
  1,794
  1,884
  1,979
  2,079

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
  2,239
  2,420
  2,608
  2,803
  3,005
  3,216
  3,435
  3,662
  3,899
  4,145
  4,402
  4,669
  4,947
  5,237
  5,540
  5,856
  6,185
  6,530
  6,889
  7,265
  7,659
  8,070
  8,501
  8,951
  9,423
  9,917
  10,435
  10,977
  11,546
  12,142
Adjusted assets (=assets-cash), $m
  2,239
  2,420
  2,608
  2,803
  3,005
  3,216
  3,435
  3,662
  3,899
  4,145
  4,402
  4,669
  4,947
  5,237
  5,540
  5,856
  6,185
  6,530
  6,889
  7,265
  7,659
  8,070
  8,501
  8,951
  9,423
  9,917
  10,435
  10,977
  11,546
  12,142
Revenue / Adjusted assets
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
  1.017
Average production assets, $m
  524
  566
  610
  656
  703
  752
  803
  857
  912
  970
  1,030
  1,092
  1,157
  1,225
  1,296
  1,370
  1,447
  1,527
  1,611
  1,699
  1,791
  1,888
  1,988
  2,094
  2,204
  2,320
  2,441
  2,568
  2,701
  2,840
Working capital, $m
  150
  162
  175
  188
  202
  216
  231
  246
  262
  278
  295
  313
  332
  352
  372
  393
  415
  438
  462
  488
  514
  542
  571
  601
  633
  666
  700
  737
  775
  815
Total debt, $m
  479
  582
  690
  802
  918
  1,038
  1,164
  1,294
  1,430
  1,571
  1,718
  1,871
  2,030
  2,197
  2,370
  2,551
  2,740
  2,937
  3,143
  3,359
  3,584
  3,820
  4,067
  4,325
  4,595
  4,878
  5,175
  5,486
  5,811
  6,153
Total liabilities, $m
  1,283
  1,387
  1,494
  1,606
  1,722
  1,843
  1,968
  2,098
  2,234
  2,375
  2,522
  2,675
  2,835
  3,001
  3,174
  3,355
  3,544
  3,741
  3,948
  4,163
  4,388
  4,624
  4,871
  5,129
  5,399
  5,683
  5,979
  6,290
  6,616
  6,957
Total equity, $m
  956
  1,033
  1,113
  1,197
  1,283
  1,373
  1,467
  1,564
  1,665
  1,770
  1,880
  1,994
  2,112
  2,236
  2,365
  2,500
  2,641
  2,788
  2,942
  3,102
  3,270
  3,446
  3,630
  3,822
  4,024
  4,235
  4,456
  4,687
  4,930
  5,184
Total liabilities and equity, $m
  2,239
  2,420
  2,607
  2,803
  3,005
  3,216
  3,435
  3,662
  3,899
  4,145
  4,402
  4,669
  4,947
  5,237
  5,539
  5,855
  6,185
  6,529
  6,890
  7,265
  7,658
  8,070
  8,501
  8,951
  9,423
  9,918
  10,435
  10,977
  11,546
  12,141
Debt-to-equity ratio
  0.500
  0.560
  0.620
  0.670
  0.720
  0.760
  0.790
  0.830
  0.860
  0.890
  0.910
  0.940
  0.960
  0.980
  1.000
  1.020
  1.040
  1.050
  1.070
  1.080
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
Adjusted equity ratio
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  389
  419
  450
  483
  517
  552
  588
  626
  666
  707
  786
  831
  877
  926
  976
  1,029
  1,084
  1,141
  1,202
  1,264
  1,330
  1,399
  1,471
  1,546
  1,625
  1,707
  1,794
  1,884
  1,979
  2,079
Depreciation, amort., depletion, $m
  137
  143
  151
  158
  166
  174
  182
  191
  200
  210
  169
  179
  190
  201
  212
  225
  237
  250
  264
  279
  294
  309
  326
  343
  361
  380
  400
  421
  443
  466
Funds from operations, $m
  525
  562
  601
  641
  682
  726
  771
  817
  866
  916
  955
  1,010
  1,067
  1,127
  1,189
  1,254
  1,321
  1,392
  1,466
  1,543
  1,624
  1,708
  1,797
  1,889
  1,986
  2,087
  2,194
  2,305
  2,422
  2,544
Change in working capital, $m
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
  36
  38
  40
Cash from operations, $m
  514
  550
  588
  628
  669
  712
  756
  802
  850
  900
  938
  992
  1,048
  1,107
  1,168
  1,232
  1,299
  1,369
  1,442
  1,518
  1,597
  1,681
  1,768
  1,859
  1,954
  2,054
  2,159
  2,269
  2,384
  2,504
Maintenance CAPEX, $m
  -79
  -86
  -93
  -100
  -107
  -115
  -123
  -132
  -140
  -150
  -159
  -169
  -179
  -190
  -201
  -212
  -225
  -237
  -250
  -264
  -279
  -294
  -309
  -326
  -343
  -361
  -380
  -400
  -421
  -443
New CAPEX, $m
  -40
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -96
  -101
  -105
  -110
  -116
  -121
  -127
  -133
  -139
Cash from investing activities, $m
  -119
  -128
  -137
  -146
  -154
  -164
  -174
  -185
  -195
  -208
  -219
  -231
  -244
  -258
  -272
  -286
  -302
  -318
  -334
  -352
  -371
  -390
  -410
  -431
  -453
  -477
  -501
  -527
  -554
  -582
Free cash flow, $m
  394
  422
  452
  482
  514
  547
  581
  617
  654
  693
  719
  761
  804
  850
  897
  946
  997
  1,051
  1,107
  1,166
  1,227
  1,291
  1,357
  1,427
  1,501
  1,577
  1,658
  1,742
  1,830
  1,922
Issuance/(repayment) of debt, $m
  99
  103
  108
  112
  116
  121
  125
  130
  136
  141
  147
  153
  159
  166
  173
  181
  189
  197
  206
  216
  225
  236
  247
  258
  270
  283
  297
  311
  326
  341
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  
  99
  103
  108
  112
  116
  121
  125
  130
  136
  141
  147
  153
  159
  166
  173
  181
  189
  197
  206
  216
  225
  236
  247
  258
  270
  283
  297
  311
  326
  341
Total cash flow (excl. dividends), $m
  493
  526
  559
  594
  630
  668
  707
  747
  790
  834
  866
  914
  964
  1,016
  1,070
  1,127
  1,186
  1,248
  1,313
  1,381
  1,452
  1,526
  1,604
  1,686
  1,771
  1,860
  1,954
  2,052
  2,155
  2,263
Retained Cash Flow (-), $m
  -74
  -77
  -80
  -83
  -87
  -90
  -93
  -97
  -101
  -105
  -109
  -114
  -119
  -124
  -129
  -135
  -141
  -147
  -154
  -161
  -168
  -176
  -184
  -192
  -201
  -211
  -221
  -232
  -243
  -254
Prev. year cash balance distribution, $m
  641
  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
  1,059
  449
  479
  511
  544
  578
  613
  650
  689
  729
  757
  800
  845
  892
  941
  992
  1,046
  1,101
  1,160
  1,220
  1,284
  1,351
  1,420
  1,493
  1,570
  1,649
  1,733
  1,821
  1,913
  2,009
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
  1,016
  411
  417
  420
  421
  419
  414
  406
  396
  382
  359
  341
  321
  299
  276
  252
  227
  203
  179
  155
  133
  112
  93
  76
  61
  48
  37
  28
  21
  15
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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Teradyne, Inc. supplies automation equipment for test and industrial applications. The Company designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, communications, and aerospace and defense industries. Its segments include Semiconductor Test, which includes operations related to the design, manufacturing and marketing of semiconductor test products and services; System Test, which includes operations related to the design, manufacturing and marketing of products and services for defense/aerospace instrumentation test, storage test and circuit-board test; Wireless Test, which includes operations related to the design, manufacturing and marketing of wireless test products and services, and Industrial Automation, which includes operations related to the design, manufacturing and marketing of collaborative robots.

FINANCIAL RATIOS  of  Teradyne, Inc. (TER)

Valuation Ratios
P/E Ratio -259.8
Price to Sales 6.4
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 25
Price to Free Cash Flow 30.9
Growth Rates
Sales Growth Rate 6.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.6%
Cap. Spend. - 3 Yr. Gr. Rate -4.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 19.3%
Total Debt to Equity 19.3%
Interest Coverage 0
Management Effectiveness
Return On Assets -1.6%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital -2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4%
Return On Equity -2.3%
Return On Equity - 3 Yr. Avg. 4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 54.8%
Gross Margin - 3 Yr. Avg. 54.7%
EBITDA Margin 3.7%
EBITDA Margin - 3 Yr. Avg. 14.3%
Operating Margin -3.4%
Oper. Margin - 3 Yr. Avg. 5.8%
Pre-Tax Margin -3.1%
Pre-Tax Margin - 3 Yr. Avg. 6%
Net Profit Margin -2.5%
Net Profit Margin - 3 Yr. Avg. 5%
Effective Tax Rate 21.8%
Eff/ Tax Rate - 3 Yr. Avg. 18.4%
Payout Ratio -114%

TER stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TER stock intrinsic value calculation we used $2101 million for the last fiscal year's total revenue generated by Teradyne, Inc.. The default revenue input number comes from 0001 income statement of Teradyne, 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 TER stock valuation model: a) initial revenue growth rate of 8.4% 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 TER is calculated based on our internal credit rating of Teradyne, 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 Teradyne, 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 TER stock the variable cost ratio is equal to 75.4%.

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 TER 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 8.4% for Teradyne, Inc..

Corporate tax rate of 27% is the nominal tax rate for Teradyne, 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 TER 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 TER are equal to 23%.

Life of production assets of 6.1 years is the average useful life of capital assets used in Teradyne, 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 TER is equal to 6.6%. 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 - $1522.354 million for Teradyne, 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 173.752 million for Teradyne, 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 Teradyne, Inc. at the current share price and the inputted number of shares is $9.7 billion.

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