Stock Analysis on Net
Stock Analysis on Net

Broadcom Inc. (NASDAQ:AVGO)

Present Value of Free Cash Flow to Equity (FCFE) 

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Broadcom Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 15.07%
01 FCFE0 39,760
1 FCFE1 37,728 = 39,760 × (1 + -5.11%) 32,787
2 FCFE2 37,330 = 37,728 × (1 + -1.06%) 28,191
3 FCFE3 38,448 = 37,330 × (1 + 3.00%) 25,233
4 FCFE4 41,159 = 38,448 × (1 + 7.05%) 23,474
5 FCFE5 45,729 = 41,159 × (1 + 11.10%) 22,664
5 Terminal value (TV5) 1,280,052 = 45,729 × (1 + 11.10%) ÷ (15.07% – 11.10%) 634,416
Intrinsic value of Broadcom Inc. common stock 766,765
 
Intrinsic value of Broadcom Inc. common stock (per share) $163.58
Current share price $237.44

Based on: 10-K (reporting date: 2024-11-03).

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.

Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.90%
Expected rate of return on market portfolio2 E(RM) 13.86%
Systematic risk of Broadcom Inc. common stock βAVGO 1.13
 
Required rate of return on Broadcom Inc. common stock3 rAVGO 15.07%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rAVGO = RF + βAVGO [E(RM) – RF]
= 4.90% + 1.13 [13.86% – 4.90%]
= 15.07%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Broadcom Inc., PRAT model

Microsoft Excel
Average Nov 3, 2024 Oct 29, 2023 Oct 30, 2022 Oct 31, 2021 Nov 1, 2020 Nov 3, 2019
Selected Financial Data (US$ in millions)
Dividends to common stockholders 9,814 7,645 6,733 5,913 5,235 4,235
Dividends to preferred stockholders — — 272 299 297 29
Net income 5,895 14,082 11,495 6,736 2,960 2,724
Net revenue 51,574 35,819 33,203 27,450 23,888 22,597
Total assets 165,645 72,861 73,249 75,570 75,933 67,493
Stockholders’ equity 67,678 23,988 22,709 24,962 23,874 24,941
Financial Ratios
Retention rate1 -0.66 0.46 0.40 0.08 -0.97 -0.57
Profit margin2 11.43% 39.31% 33.80% 23.45% 11.15% 11.93%
Asset turnover3 0.31 0.49 0.45 0.36 0.31 0.33
Financial leverage4 2.45 3.04 3.23 3.03 3.18 2.71
Averages
Retention rate -0.21
Profit margin 21.84%
Asset turnover 0.38
Financial leverage 2.94
 
FCFE growth rate (g)5 -5.11%

Based on: 10-K (reporting date: 2024-11-03), 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-11-01), 10-K (reporting date: 2019-11-03).

2024 Calculations

1 Retention rate = (Net income – Dividends to common stockholders – Dividends to preferred stockholders) ÷ (Net income – Dividends to preferred stockholders)
= (5,895 – 9,814 – 0) ÷ (5,895 – 0)
= -0.66

2 Profit margin = 100 × (Net income – Dividends to preferred stockholders) ÷ Net revenue
= 100 × (5,895 – 0) ÷ 51,574
= 11.43%

3 Asset turnover = Net revenue ÷ Total assets
= 51,574 ÷ 165,645
= 0.31

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 165,645 ÷ 67,678
= 2.45

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.21 × 21.84% × 0.38 × 2.94
= -5.11%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (1,112,966 × 15.07% – 39,760) ÷ (1,112,966 + 39,760)
= 11.10%

where:
Equity market value0 = current market value of Broadcom Inc. common stock (US$ in millions)
FCFE0 = the last year Broadcom Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Broadcom Inc. common stock

FCFE growth rate (g) forecast

Broadcom Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -5.11%
2 g2 -1.06%
3 g3 3.00%
4 g4 7.05%
5 and thereafter g5 11.10%

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)
= -5.11% + (11.10% – -5.11%) × (2 – 1) ÷ (5 – 1)
= -1.06%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -5.11% + (11.10% – -5.11%) × (3 – 1) ÷ (5 – 1)
= 3.00%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -5.11% + (11.10% – -5.11%) × (4 – 1) ÷ (5 – 1)
= 7.05%