Stock Analysis on Net
Stock Analysis on Net

Advanced Micro Devices Inc. (NASDAQ:AMD)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Advanced Micro Devices Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 19.42%
01 FCFF0 1,187
1 FCFF1 1,405 = 1,187 × (1 + 18.32%) 1,176
2 FCFF2 1,664 = 1,405 × (1 + 18.44%) 1,167
3 FCFF3 1,973 = 1,664 × (1 + 18.56%) 1,158
4 FCFF4 2,341 = 1,973 × (1 + 18.68%) 1,151
5 FCFF5 2,782 = 2,341 × (1 + 18.80%) 1,145
5 Terminal value (TV5) 535,470 = 2,782 × (1 + 18.80%) ÷ (19.42% – 18.80%) 220,459
Intrinsic value of Advanced Micro Devices Inc. capital 226,257
Less: Debt (fair value) 2,371
Intrinsic value of Advanced Micro Devices Inc. common stock 223,886
 
Intrinsic value of Advanced Micro Devices Inc. common stock (per share) $137.96
Current share price $139.39

Based on: 10-K (reporting date: 2023-12-30).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Advanced Micro Devices Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 226,203 0.99 19.60%
Debt (fair value) 2,371 0.01 2.68% = 3.26% × (1 – 17.77%)

Based on: 10-K (reporting date: 2023-12-30).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,622,807,346 × $139.39
= $226,203,115,958.94

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (21.00% + 21.00% + 14.00% + 21.00% + 11.83%) ÷ 5
= 17.77%

WACC = 19.42%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Advanced Micro Devices Inc., PRAT model

Microsoft Excel
Average Dec 30, 2023 Dec 31, 2022 Dec 25, 2021 Dec 26, 2020 Dec 28, 2019
Selected Financial Data (US$ in millions)
Interest expense 106 88 34 47 94
Net income 854 1,320 3,162 2,490 341
 
Effective income tax rate (EITR)1 21.00% 21.00% 14.00% 21.00% 11.83%
 
Interest expense, after tax2 84 70 29 37 83
Interest expense (after tax) and dividends 84 70 29 37 83
 
EBIT(1 – EITR)3 938 1,390 3,191 2,527 424
 
Current portion of long-term debt, net 751 — 312 — —
Long-term debt, net of current portion 1,717 2,467 1 330 486
Stockholders’ equity 55,892 54,750 7,497 5,837 2,827
Total capital 58,360 57,217 7,810 6,167 3,313
Financial Ratios
Retention rate (RR)4 0.91 0.95 0.99 0.99 0.80
Return on invested capital (ROIC)5 1.61% 2.43% 40.86% 40.98% 12.79%
Averages
RR 0.93
ROIC 19.73%
 
FCFF growth rate (g)6 18.32%

Based on: 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25), 10-K (reporting date: 2020-12-26), 10-K (reporting date: 2019-12-28).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 106 × (1 – 21.00%)
= 84

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 854 + 84
= 938

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [938 – 84] ÷ 938
= 0.91

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 938 ÷ 58,360
= 1.61%

6 g = RR × ROIC
= 0.93 × 19.73%
= 18.32%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (228,574 × 19.42% – 1,187) ÷ (228,574 + 1,187)
= 18.80%

where:

Total capital, fair value0 = current fair value of Advanced Micro Devices Inc. debt and equity (US$ in millions)
FCFF0 = the last year Advanced Micro Devices Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Advanced Micro Devices Inc. capital

FCFF growth rate (g) forecast

Advanced Micro Devices Inc., H-model

Microsoft Excel
Year Value gt
1 g1 18.32%
2 g2 18.44%
3 g3 18.56%
4 g4 18.68%
5 and thereafter g5 18.80%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 18.32% + (18.80% – 18.32%) × (2 – 1) ÷ (5 – 1)
= 18.44%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 18.32% + (18.80% – 18.32%) × (3 – 1) ÷ (5 – 1)
= 18.56%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 18.32% + (18.80% – 18.32%) × (4 – 1) ÷ (5 – 1)
= 18.68%