Stock Analysis on Net
Stock Analysis on Net

Micron Technology Inc. (NASDAQ:MU)

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)

Micron Technology 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 15.99%
01 FCFF0 584
1 FCFF1 623 = 584 × (1 + 6.59%) 537
2 FCFF2 677 = 623 × (1 + 8.81%) 503
3 FCFF3 752 = 677 × (1 + 11.02%) 482
4 FCFF4 851 = 752 × (1 + 13.23%) 470
5 FCFF5 983 = 851 × (1 + 15.44%) 468
5 Terminal value (TV5) 204,862 = 983 × (1 + 15.44%) ÷ (15.99% – 15.44%) 97,567
Intrinsic value of Micron Technology Inc. capital 100,028
Less: Debt (fair value) 13,370
Intrinsic value of Micron Technology Inc. common stock 86,658
 
Intrinsic value of Micron Technology Inc. common stock (per share) $78.16
Current share price $97.73

Based on: 10-K (reporting date: 2024-08-29).

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)

Micron Technology Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 108,357 0.89 17.41%
Debt (fair value) 13,370 0.11 4.48% = 5.29% × (1 – 15.35%)

Based on: 10-K (reporting date: 2024-08-29).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,108,742,682 × $97.73
= $108,357,422,311.86

   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
= (36.40% + 21.00% + 9.30% + 6.30% + 9.40% + 9.70%) ÷ 6
= 15.35%

WACC = 15.99%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Micron Technology Inc., PRAT model

Microsoft Excel
Average Aug 29, 2024 Aug 31, 2023 Sep 1, 2022 Sep 2, 2021 Sep 3, 2020 Aug 29, 2019
Selected Financial Data (US$ in millions)
Interest expense 562 388 189 183 194 128
Net income (loss) attributable to Micron 778 (5,833) 8,687 5,861 2,687 6,313
 
Effective income tax rate (EITR)1 36.40% 21.00% 9.30% 6.30% 9.40% 9.70%
 
Interest expense, after tax2 357 307 171 171 176 116
Add: Dividends and dividend equivalents declared 518 509 352 112 — —
Interest expense (after tax) and dividends 875 816 523 283 176 116
 
EBIT(1 – EITR)3 1,135 (5,526) 8,858 6,032 2,863 6,429
 
Current debt 431 278 103 155 270 1,310
Long-term debt 12,966 13,052 6,803 6,621 6,373 4,541
Total Micron shareholders’ equity 45,131 44,120 49,907 43,933 38,996 35,881
Total capital 58,528 57,450 56,813 50,709 45,639 41,732
Financial Ratios
Retention rate (RR)4 0.23 — 0.94 0.95 0.94 0.98
Return on invested capital (ROIC)5 1.94% -9.62% 15.59% 11.90% 6.27% 15.40%
Averages
RR 0.95
ROIC 6.91%
 
FCFF growth rate (g)6 6.59%

Based on: 10-K (reporting date: 2024-08-29), 10-K (reporting date: 2023-08-31), 10-K (reporting date: 2022-09-01), 10-K (reporting date: 2021-09-02), 10-K (reporting date: 2020-09-03), 10-K (reporting date: 2019-08-29).

1 See details »

2024 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 562 × (1 – 36.40%)
= 357

3 EBIT(1 – EITR) = Net income (loss) attributable to Micron + Interest expense, after tax
= 778 + 357
= 1,135

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,135 – 875] ÷ 1,135
= 0.23

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,135 ÷ 58,528
= 1.94%

6 g = RR × ROIC
= 0.95 × 6.91%
= 6.59%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (121,727 × 15.99% – 584) ÷ (121,727 + 584)
= 15.44%

where:

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

FCFF growth rate (g) forecast

Micron Technology Inc., H-model

Microsoft Excel
Year Value gt
1 g1 6.59%
2 g2 8.81%
3 g3 11.02%
4 g4 13.23%
5 and thereafter g5 15.44%

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)
= 6.59% + (15.44% – 6.59%) × (2 – 1) ÷ (5 – 1)
= 8.81%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.59% + (15.44% – 6.59%) × (3 – 1) ÷ (5 – 1)
= 11.02%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.59% + (15.44% – 6.59%) × (4 – 1) ÷ (5 – 1)
= 13.23%