Stock Analysis on Net
Stock Analysis on Net

Microchip Technology Inc. (NASDAQ:MCHP)

This company has been moved to the archive! The financial data has not been updated since February 2, 2023.

Dividend Discount Model (DDM) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

Microchip Technology Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 18.99%
0 DPS01 0.91
1 DPS1 0.91 = 0.91 × (1 + -0.41%) 0.76
2 DPS2 0.94 = 0.91 × (1 + 4.12%) 0.67
3 DPS3 1.03 = 0.94 × (1 + 8.66%) 0.61
4 DPS4 1.16 = 1.03 × (1 + 13.19%) 0.58
5 DPS5 1.37 = 1.16 × (1 + 17.73%) 0.57
5 Terminal value (TV5) 126.91 = 1.37 × (1 + 17.73%) ÷ (18.99% – 17.73%) 53.20
Intrinsic value of Microchip Technology Inc. common stock (per share) $56.39
Current share price $84.53

Based on: 10-K (reporting date: 2022-03-31).

1 DPS0 = Sum of the last year dividends per share of Microchip Technology Inc. common stock. 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 4.67%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Microchip Technology Inc. common stock βMCHP 1.57
 
Required rate of return on Microchip Technology Inc. common stock3 rMCHP 18.99%

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 rMCHP = RF + βMCHP [E(RM) – RF]
= 4.67% + 1.57 [13.79% – 4.67%]
= 18.99%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Microchip Technology Inc., PRAT model

Microsoft Excel
Average Mar 31, 2022 Mar 31, 2021 Mar 31, 2020 Mar 31, 2019 Mar 31, 2018 Mar 31, 2017
Selected Financial Data (US$ in thousands)
Cash dividend 503,800 388,300 350,100 344,400 337,500 315,429
Net income 1,285,500 349,400 570,600 355,900 255,400 164,639
Net sales 6,820,900 5,438,400 5,274,200 5,349,500 3,980,800 3,407,807
Total assets 16,199,500 16,478,800 17,426,100 18,350,000 8,257,200 7,686,881
Stockholders’ equity 5,894,800 5,337,100 5,585,500 5,287,500 3,279,800 3,270,711
Financial Ratios
Retention rate1 0.61 -0.11 0.39 0.03 -0.32 -0.92
Profit margin2 18.85% 6.42% 10.82% 6.65% 6.42% 4.83%
Asset turnover3 0.42 0.33 0.30 0.29 0.48 0.44
Financial leverage4 2.75 3.09 3.12 3.47 2.52 2.35
Averages
Retention rate -0.05
Profit margin 7.03%
Asset turnover 0.38
Financial leverage 2.88
 
Dividend growth rate (g)5 -0.41%

Based on: 10-K (reporting date: 2022-03-31), 10-K (reporting date: 2021-03-31), 10-K (reporting date: 2020-03-31), 10-K (reporting date: 2019-03-31), 10-K (reporting date: 2018-03-31), 10-K (reporting date: 2017-03-31).

2022 Calculations

1 Retention rate = (Net income – Cash dividend) ÷ Net income
= (1,285,500 – 503,800) ÷ 1,285,500
= 0.61

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × 1,285,500 ÷ 6,820,900
= 18.85%

3 Asset turnover = Net sales ÷ Total assets
= 6,820,900 ÷ 16,199,500
= 0.42

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 16,199,500 ÷ 5,894,800
= 2.75

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.05 × 7.03% × 0.38 × 2.88
= -0.41%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × r – D0) ÷ (P0 + D0)
= 100 × ($84.53 × 18.99% – $0.91) ÷ ($84.53 + $0.91)
= 17.73%

where:
P0 = current price of share of Microchip Technology Inc. common stock
D0 = the last year dividends per share of Microchip Technology Inc. common stock
r = required rate of return on Microchip Technology Inc. common stock

Dividend growth rate (g) forecast

Microchip Technology Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -0.41%
2 g2 4.12%
3 g3 8.66%
4 g4 13.19%
5 and thereafter g5 17.73%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -0.41% + (17.73% – -0.41%) × (2 – 1) ÷ (5 – 1)
= 4.12%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.41% + (17.73% – -0.41%) × (3 – 1) ÷ (5 – 1)
= 8.66%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.41% + (17.73% – -0.41%) × (4 – 1) ÷ (5 – 1)
= 13.19%