Stock Analysis on Net
Stock Analysis on Net

Teradyne Inc. (NASDAQ:TER)

This company has been moved to the archive! The financial data has not been updated since May 3, 2024.

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)

Teradyne Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 19.34%
01 FCFF0 425,842
1 FCFF1 531,904 = 425,842 × (1 + 24.91%) 445,717
2 FCFF2 653,463 = 531,904 × (1 + 22.85%) 458,851
3 FCFF3 789,385 = 653,463 × (1 + 20.80%) 464,477
4 FCFF4 937,372 = 789,385 × (1 + 18.75%) 462,182
5 FCFF5 1,093,856 = 937,372 × (1 + 16.69%) 451,946
5 Terminal value (TV5) 48,296,827 = 1,093,856 × (1 + 16.69%) ÷ (19.34% – 16.69%) 19,954,677
Intrinsic value of Teradyne Inc. capital 22,237,849
Less: Convertible debt (fair value) 0
Intrinsic value of Teradyne Inc. common stock 22,237,849
 
Intrinsic value of Teradyne Inc. common stock (per share) $142.45
Current share price $120.44

Based on: 10-K (reporting date: 2023-12-31).

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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)

Teradyne Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 18,802,115 1.00 19.34%
Convertible debt (fair value) 0 0.00 0.00% = 0.00% × (1 – 13.24%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 156,111,885 × $120.44
= $18,802,115,429.40

   Convertible 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
= (14.60% + 14.90% + 12.60% + 13.00% + 11.10%) ÷ 5
= 13.24%

WACC = 19.34%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Teradyne Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Interest expense 3,806 3,719 17,820 24,182 23,145
Net income 448,752 715,501 1,014,589 784,147 467,468
 
Effective income tax rate (EITR)1 14.60% 14.90% 12.60% 13.00% 11.10%
 
Interest expense, after tax2 3,250 3,165 15,575 21,038 20,576
Add: Cash dividends 67,927 69,763 66,034 66,540 61,355
Interest expense (after tax) and dividends 71,177 72,928 81,609 87,578 81,931
 
EBIT(1 – EITR)3 452,002 718,666 1,030,164 805,185 488,044
 
Current debt — 50,115 19,182 33,343 —
Long-term debt — — 89,244 376,768 394,687
Shareholders’ equity 2,525,897 2,451,294 2,562,444 2,207,018 1,480,158
Total capital 2,525,897 2,501,409 2,670,870 2,617,129 1,874,845
Financial Ratios
Retention rate (RR)4 0.84 0.90 0.92 0.89 0.83
Return on invested capital (ROIC)5 17.89% 28.73% 38.57% 30.77% 26.03%
Averages
RR 0.88
ROIC 28.40%
 
FCFF growth rate (g)6 24.91%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 3,806 × (1 – 14.60%)
= 3,250

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 448,752 + 3,250
= 452,002

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [452,002 – 71,177] ÷ 452,002
= 0.84

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 452,002 ÷ 2,525,897
= 17.89%

6 g = RR × ROIC
= 0.88 × 28.40%
= 24.91%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (18,802,115 × 19.34% – 425,842) ÷ (18,802,115 + 425,842)
= 16.69%

where:

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

FCFF growth rate (g) forecast

Teradyne Inc., H-model

Microsoft Excel
Year Value gt
1 g1 24.91%
2 g2 22.85%
3 g3 20.80%
4 g4 18.75%
5 and thereafter g5 16.69%

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)
= 24.91% + (16.69% – 24.91%) × (2 – 1) ÷ (5 – 1)
= 22.85%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 24.91% + (16.69% – 24.91%) × (3 – 1) ÷ (5 – 1)
= 20.80%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 24.91% + (16.69% – 24.91%) × (4 – 1) ÷ (5 – 1)
= 18.75%