Stock Analysis on Net
Stock Analysis on Net

Lam Research Corp. (NASDAQ:LRCX)

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)

Lam Research Corp., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 19.81%
01 FCFE0 3,999,495
1 FCFE1 5,650,519 = 3,999,495 × (1 + 41.28%) 4,716,318
2 FCFE2 7,620,608 = 5,650,519 × (1 + 34.87%) 5,309,078
3 FCFE3 9,788,703 = 7,620,608 × (1 + 28.45%) 5,692,059
4 FCFE4 11,945,666 = 9,788,703 × (1 + 22.04%) 5,797,881
5 FCFE5 13,811,582 = 11,945,666 × (1 + 15.62%) 5,595,219
5 Terminal value (TV5) 381,318,964 = 13,811,582 × (1 + 15.62%) ÷ (19.81% – 15.62%) 154,476,378
Intrinsic value of Lam Research Corp. common stock 181,586,933
 
Intrinsic value of Lam Research Corp. common stock (per share) $141.46
Current share price $86.02

Based on: 10-K (reporting date: 2024-06-30).

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.70%
Expected rate of return on market portfolio2 E(RM) 14.45%
Systematic risk of Lam Research Corp. common stock βLRCX 1.55
 
Required rate of return on Lam Research Corp. common stock3 rLRCX 19.81%

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 rLRCX = RF + βLRCX [E(RM) – RF]
= 4.70% + 1.55 [14.45% – 4.70%]
= 19.81%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Lam Research Corp., PRAT model

Microsoft Excel
Average Jun 30, 2024 Jun 25, 2023 Jun 26, 2022 Jun 27, 2021 Jun 28, 2020 Jun 30, 2019
Selected Financial Data (US$ in thousands)
Cash dividends declared 1,048,553 933,559 835,474 745,294 665,099 662,844
Net income 3,827,772 4,510,931 4,605,286 3,908,458 2,251,753 2,191,430
Revenue 14,905,386 17,428,516 17,227,039 14,626,150 10,044,736 9,653,559
Total assets 18,744,728 18,781,643 17,195,632 15,892,152 14,559,047 12,001,333
Stockholders’ equity 8,539,454 8,210,172 6,278,366 6,027,188 5,172,494 4,673,865
Financial Ratios
Retention rate1 0.73 0.79 0.82 0.81 0.70 0.70
Profit margin2 25.68% 25.88% 26.73% 26.72% 22.42% 22.70%
Asset turnover3 0.80 0.93 1.00 0.92 0.69 0.80
Financial leverage4 2.20 2.29 2.74 2.64 2.81 2.57
Averages
Retention rate 0.76
Profit margin 25.02%
Asset turnover 0.86
Financial leverage 2.54
 
FCFE growth rate (g)5 41.28%

Based on: 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-25), 10-K (reporting date: 2022-06-26), 10-K (reporting date: 2021-06-27), 10-K (reporting date: 2020-06-28), 10-K (reporting date: 2019-06-30).

2024 Calculations

1 Retention rate = (Net income – Cash dividends declared) ÷ Net income
= (3,827,772 – 1,048,553) ÷ 3,827,772
= 0.73

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 3,827,772 ÷ 14,905,386
= 25.68%

3 Asset turnover = Revenue ÷ Total assets
= 14,905,386 ÷ 18,744,728
= 0.80

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 18,744,728 ÷ 8,539,454
= 2.20

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.76 × 25.02% × 0.86 × 2.54
= 41.28%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (110,420,605 × 19.81% – 3,999,495) ÷ (110,420,605 + 3,999,495)
= 15.62%

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

FCFE growth rate (g) forecast

Lam Research Corp., H-model

Microsoft Excel
Year Value gt
1 g1 41.28%
2 g2 34.87%
3 g3 28.45%
4 g4 22.04%
5 and thereafter g5 15.62%

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)
= 41.28% + (15.62% – 41.28%) × (2 – 1) ÷ (5 – 1)
= 34.87%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 41.28% + (15.62% – 41.28%) × (3 – 1) ÷ (5 – 1)
= 28.45%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 41.28% + (15.62% – 41.28%) × (4 – 1) ÷ (5 – 1)
= 22.04%