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)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

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

US$ in thousands, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 14.45%
0¹	FCFF₀	3,745,804
1	FCFF₁	3,847,216	= 3,745,804 × (1 + 2.71%)	3,361,411
2	FCFF₂	4,028,189	= 3,847,216 × (1 + 4.70%)	3,075,105
3	FCFF₃	4,298,103	= 4,028,189 × (1 + 6.70%)	2,866,831
4	FCFF₄	4,671,922	= 4,298,103 × (1 + 8.70%)	2,722,676
5	FCFF₅	5,171,535	= 4,671,922 × (1 + 10.69%)	2,633,267
5	Terminal value (TV₅)	152,312,003	= 5,171,535 × (1 + 10.69%) ÷ (14.45% – 10.69%)	77,554,953
Intrinsic value of Analog Devices Inc. capital				92,214,242
Less: Debt (fair value)				5,844,284
Intrinsic value of Analog Devices Inc. common stock				86,369,958

Intrinsic value of Analog Devices Inc. common stock (per share)				$173.96
Current share price				$210.43

Based on: 10-K (reporting date: 2023-10-28).

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.

Analog Devices Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	104,477,118	0.95	15.10%
Debt (fair value)	5,844,284	0.05	2.79%	= 3.03% × (1 – 7.92%)

Based on: 10-K (reporting date: 2023-10-28).

¹ US$ in thousands

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 496,493,455 × $210.43
= $104,477,117,735.65

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
= (8.13% + 11.30% + 21.00% + 6.93% + 8.76% + 4.46%) ÷ 6
= 7.92%

WACC = 14.45%

FCFF growth rate (g) implied by PRAT model

Analog Devices Inc., PRAT model

	Average	Oct 28, 2023	Oct 29, 2022	Oct 30, 2021	Oct 31, 2020	Nov 2, 2019	Nov 3, 2018
Selected Financial Data (US$ in thousands)
Interest expense		264,641)	200,408)	184,825)	193,305)	229,075)	253,589)
Net income		3,314,579)	2,748,561)	1,390,422)	1,220,761)	1,363,011)	1,495,432)

Effective income tax rate (EITR)¹		8.13%	11.30%	21.00%	6.93%	8.76%	4.46%

Interest expense, after tax²		243,126)	177,762)	146,012)	179,909)	209,008)	242,279)
Add: Dividends declared and paid		1,679,106)	1,544,552)	1,109,344)	886,155)	777,481)	703,307)
Interest expense (after tax) and dividends		1,922,232)	1,722,314)	1,255,356)	1,066,064)	986,489)	945,586)

EBIT(1 – EITR)³		3,557,705)	2,926,323)	1,536,434)	1,400,670)	1,572,019)	1,737,711)

Debt, current		499,052)	—)	516,663)	—)	299,667)	67,000)
Commercial paper notes		547,224)	—)	—)	—)	—)	—)
Long-term debt, excluding current		5,902,457)	6,548,625)	6,253,212)	5,145,102)	5,192,252)	6,265,674)
Shareholders’ equity		35,565,122)	36,465,323)	37,992,542)	11,997,945)	11,709,188)	10,988,540)
Total capital		42,513,855)	43,013,948)	44,762,417)	17,143,047)	17,201,107)	17,321,214)
Financial Ratios
Retention rate (RR)⁴		0.46	0.41	0.18	0.24	0.37	0.46
Return on invested capital (ROIC)⁵		8.37%	6.80%	3.43%	8.17%	9.14%	10.03%
Averages
RR	0.35
ROIC	7.66%

FCFF growth rate (g)⁶	2.71%

Based on: 10-K (reporting date: 2023-10-28), 10-K (reporting date: 2022-10-29), 10-K (reporting date: 2021-10-30), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-11-02), 10-K (reporting date: 2018-11-03).

¹ See details »

2023 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 264,641 × (1 – 8.13%)
= 243,126

³ EBIT(1 – EITR) = Net income + Interest expense, after tax
= 3,314,579 + 243,126
= 3,557,705

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,557,705 – 1,922,232] ÷ 3,557,705
= 0.46

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,557,705 ÷ 42,513,855
= 8.37%

⁶ g = RR × ROIC
= 0.35 × 7.66%
= 2.71%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (110,321,402 × 14.45% – 3,745,804) ÷ (110,321,402 + 3,745,804)
= 10.69%

where:

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

FCFF growth rate (g) forecast

Analog Devices Inc., H-model

Year	Value	g_t
1	g₁	2.71%
2	g₂	4.70%
3	g₃	6.70%
4	g₄	8.70%
5 and thereafter	g₅	10.69%

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)
= 2.71% + (10.69% – 2.71%) × (2 – 1) ÷ (5 – 1)
= 4.70%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 2.71% + (10.69% – 2.71%) × (3 – 1) ÷ (5 – 1)
= 6.70%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 2.71% + (10.69% – 2.71%) × (4 – 1) ÷ (5 – 1)
= 8.70%

Analog Devices Inc. (NASDAQ:ADI)

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

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

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

FCFF growth rate (g) forecast