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    ANET · NYQ · Technology

    Arista Networks, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 72.76

    Market price

    USD 199.39

    Implied upside

    -63.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.85% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.32% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Current EV/EBITDA of 61.3x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 72.76-63.5%
    Exit multiple
    USD 141.81-28.9%
    Market price
    USD 199.39

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn6bn12bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 11.5bnUSD 14.6bnUSD 18.5bnUSD 23.5bnUSD 29.9bn+27.1%
    EBITUSD 4.5bnUSD 5.8bnUSD 7.3bnUSD 9.3bnUSD 11.8bn+27.1%
    NOPATUSD 3.9bnUSD 4.9bnUSD 6.3bnUSD 8.0bnUSD 10.2bn+27.1%
    Add depreciation & amortisationUSD 123.9mUSD 157.5mUSD 200.3mUSD 254.6mUSD 323.7m+27.1%
    Less capital expenditureUSD -150.9mUSD -191.9mUSD -244.0mUSD -310.2mUSD -394.5m+27.1%
    Less increase in working capitalUSD 839.7mUSD 1.1bnUSD 1.4bnUSD 1.7bnUSD 2.2bn-27.1%
    Free cashflow to firmUSD 4.7bnUSD 6.0bnUSD 7.6bnUSD 9.7bnUSD 12.3bn+27.1%
    Discount factor0.94170.83500.74050.65660.5822-
    Present valueUSD 4.4bnUSD 5.0bnUSD 5.6bnUSD 6.3bnUSD 7.2bn+12.7%
    Present Value Of The ForecastUSD 28.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.413Reported 1.617, pulled toward 1.0 (Blume)
    Cost of equity12.77%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 251.5bn100.0% of capital
    Total debtUSD 0.000.0% of capital, book value as a proxy
    Tax rate14.2%Effective, capped at statutory
    WACC12.77%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 72.76

    65% of EV

    Forecast FCFF, final year
    USD 12.3bn
    Capex at depreciation, working capital in reinvestment
    USD 10.2bn
    Less reinvestment at g/ROIC (9.3% of NOPAT)
    USD -948.2m
    Capitalised
    USD 9.2bn
    ROIC (reported)
    26.8%
    Terminal value, undiscounted
    USD 91.9bn
    Terminal value, discounted
    USD 53.5bn
    Enterprise value
    USD 82.1bn
    Less net debt
    USD -10.7bn
    Equity value
    USD 92.8bn

    Exit at 20.0x EBITDA

    Value per shareUSD 141.81

    83% of EV

    Terminal value, undiscounted
    USD 243.2bn
    Terminal value, discounted
    USD 141.6bn
    Enterprise value
    USD 170.2bn
    Less net debt
    USD -10.7bn
    Equity value
    USD 180.9bn

    Spread between methods: 64%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    10.77%83.8886.0288.4191.0994.13
    11.77%76.3977.9879.7481.6983.87
    12.77%70.2271.4472.7674.2175.81
    13.77%65.0766.0067.0268.1169.31
    14.77%60.6961.4262.2063.0563.96

    Outlined: this model. Green text: above today's price of 199.39. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year27.1%60.4%+33.3pp
    Discount rate12.8%6.0%-6.8pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.