Stock Analysis on Net
Stock Analysis on Net

Texas Instruments Inc. (NASDAQ:TXN)

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)

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

US$ in millions, except per share data

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Year Value FCFFt or Terminal value (TVt) Calculation Present value at 13.79%
01 FCFF0 1,932
1 FCFF1 2,128 = 1,932 × (1 + 10.14%) 1,870
2 FCFF2 2,355 = 2,128 × (1 + 10.69%) 1,819
3 FCFF3 2,620 = 2,355 × (1 + 11.25%) 1,778
4 FCFF4 2,929 = 2,620 × (1 + 11.80%) 1,747
5 FCFF5 3,291 = 2,929 × (1 + 12.35%) 1,725
5 Terminal value (TV5) 257,217 = 3,291 × (1 + 12.35%) ÷ (13.79% – 12.35%) 134,821
Intrinsic value of Texas Instruments Inc. capital 143,760
Less: Long-term debt, including current portion (fair value) 12,480
Intrinsic value of Texas Instruments Inc. common stock 131,280
 
Intrinsic value of Texas Instruments Inc. common stock (per share) $144.21
Current share price $152.15

Based on: 10-K (reporting date: 2024-12-31).

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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)

Texas Instruments Inc., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 138,507 0.92 14.73%
Long-term debt, including current portion (fair value) 12,480 0.08 3.36% = 3.79% × (1 – 11.38%)

Based on: 10-K (reporting date: 2024-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 910,332,971 × $152.15
= $138,507,161,537.65

   Long-term debt, including current portion (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
= (12.00% + 12.20% + 12.80% + 12.90% + 7.00%) ÷ 5
= 11.38%

WACC = 13.79%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Texas Instruments Inc., PRAT model

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Average Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in millions)
Interest and debt expense 508 353 214 184 190
Net income 4,799 6,510 8,749 7,769 5,595
 
Effective income tax rate (EITR)1 12.00% 12.20% 12.80% 12.90% 7.00%
 
Interest and debt expense, after tax2 447 310 187 160 177
Add: Dividends declared and paid 4,795 4,557 4,297 3,886 3,426
Interest expense (after tax) and dividends 5,242 4,867 4,484 4,046 3,603
 
EBIT(1 – EITR)3 5,246 6,820 8,936 7,929 5,772
 
Current portion of long-term debt 750 599 500 500 550
Long-term debt, excluding current portion 12,846 10,624 8,235 7,241 6,248
Stockholders’ equity 16,903 16,897 14,577 13,333 9,187
Total capital 30,499 28,120 23,312 21,074 15,985
Financial Ratios
Retention rate (RR)4 0.00 0.29 0.50 0.49 0.38
Return on invested capital (ROIC)5 17.20% 24.25% 38.33% 37.63% 36.11%
Averages
RR 0.33
ROIC 30.70%
 
FCFF growth rate (g)6 10.14%

Based on: 10-K (reporting date: 2024-12-31), 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).

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2024 Calculations

2 Interest and debt expense, after tax = Interest and debt expense × (1 – EITR)
= 508 × (1 – 12.00%)
= 447

3 EBIT(1 – EITR) = Net income + Interest and debt expense, after tax
= 4,799 + 447
= 5,246

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [5,246 – 5,242] ÷ 5,246
= 0.00

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 5,246 ÷ 30,499
= 17.20%

6 g = RR × ROIC
= 0.33 × 30.70%
= 10.14%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (150,987 × 13.79% – 1,932) ÷ (150,987 + 1,932)
= 12.35%

where:

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

FCFF growth rate (g) forecast

Texas Instruments Inc., H-model

Microsoft Excel
Year Value gt
1 g1 10.14%
2 g2 10.69%
3 g3 11.25%
4 g4 11.80%
5 and thereafter g5 12.35%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 10.14% + (12.35% – 10.14%) × (2 – 1) ÷ (5 – 1)
= 10.69%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 10.14% + (12.35% – 10.14%) × (3 – 1) ÷ (5 – 1)
= 11.25%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 10.14% + (12.35% – 10.14%) × (4 – 1) ÷ (5 – 1)
= 11.80%