Stock Analysis on Net
Stock Analysis on Net

Qualcomm Inc. (NASDAQ:QCOM)

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)

Qualcomm 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 15.44%
01 FCFF0 11,905
1 FCFF1 13,676 = 11,905 × (1 + 14.87%) 11,847
2 FCFF2 15,505 = 13,676 × (1 + 13.37%) 11,635
3 FCFF3 17,345 = 15,505 × (1 + 11.87%) 11,275
4 FCFF4 19,144 = 17,345 × (1 + 10.37%) 10,780
5 FCFF5 20,842 = 19,144 × (1 + 8.87%) 10,167
5 Terminal value (TV5) 345,402 = 20,842 × (1 + 8.87%) ÷ (15.44% – 8.87%) 168,488
Intrinsic value of Qualcomm Inc. capital 224,192
Less: Debt (fair value) 14,300
Intrinsic value of Qualcomm Inc. common stock 209,892
 
Intrinsic value of Qualcomm Inc. common stock (per share) $188.92
Current share price $164.71

Based on: 10-K (reporting date: 2024-09-29).

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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)

Qualcomm Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 182,993 0.93 16.34%
Debt (fair value) 14,300 0.07 3.95% = 4.27% × (1 – 7.40%)

Based on: 10-K (reporting date: 2024-09-29).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,111,000,000 × $164.71
= $182,992,810,000.00

   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
= (2.00% + 1.00% + 13.00% + 12.00% + 9.00% + 41.37%) ÷ 6
= 7.40%

WACC = 15.44%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Qualcomm Inc., PRAT model

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Average Sep 29, 2024 Sep 24, 2023 Sep 25, 2022 Sep 26, 2021 Sep 27, 2020 Sep 29, 2019
Selected Financial Data (US$ in millions)
Interest expense 697 694 490 559 602 627
Discontinued operations, net of income taxes 32 (107) (50) — — —
Net income 10,142 7,232 12,936 9,043 5,198 4,386
 
Effective income tax rate (EITR)1 2.00% 1.00% 13.00% 12.00% 9.00% 41.37%
 
Interest expense, after tax2 683 687 426 492 548 368
Add: Dividends 3,794 3,584 3,303 3,097 2,972 3,034
Interest expense (after tax) and dividends 4,477 4,271 3,729 3,589 3,520 3,402
 
EBIT(1 – EITR)3 10,793 8,026 13,412 9,535 5,746 4,754
 
Short-term debt 1,364 914 1,945 2,044 500 2,496
Long-term debt 13,270 14,484 13,537 13,701 15,226 13,437
Stockholders’ equity 26,274 21,581 18,013 9,950 6,077 4,909
Total capital 40,908 36,979 33,495 25,695 21,803 20,842
Financial Ratios
Retention rate (RR)4 0.59 0.47 0.72 0.62 0.39 0.28
Return on invested capital (ROIC)5 26.38% 21.70% 40.04% 37.11% 26.35% 22.81%
Averages
RR 0.51
ROIC 29.07%
 
FCFF growth rate (g)6 14.87%

Based on: 10-K (reporting date: 2024-09-29), 10-K (reporting date: 2023-09-24), 10-K (reporting date: 2022-09-25), 10-K (reporting date: 2021-09-26), 10-K (reporting date: 2020-09-27), 10-K (reporting date: 2019-09-29).

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2024 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 697 × (1 – 2.00%)
= 683

3 EBIT(1 – EITR) = Net income – Discontinued operations, net of income taxes + Interest expense, after tax
= 10,142 – 32 + 683
= 10,793

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [10,793 – 4,477] ÷ 10,793
= 0.59

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 10,793 ÷ 40,908
= 26.38%

6 g = RR × ROIC
= 0.51 × 29.07%
= 14.87%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (197,293 × 15.44% – 11,905) ÷ (197,293 + 11,905)
= 8.87%

where:

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

FCFF growth rate (g) forecast

Qualcomm Inc., H-model

Microsoft Excel
Year Value gt
1 g1 14.87%
2 g2 13.37%
3 g3 11.87%
4 g4 10.37%
5 and thereafter g5 8.87%

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)
= 14.87% + (8.87% – 14.87%) × (2 – 1) ÷ (5 – 1)
= 13.37%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 14.87% + (8.87% – 14.87%) × (3 – 1) ÷ (5 – 1)
= 11.87%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 14.87% + (8.87% – 14.87%) × (4 – 1) ÷ (5 – 1)
= 10.37%