DCF Studio

    AVGO · NMS · Technology

    Broadcom Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 136.38

    Market price

    USD 357.61

    Implied upside

    -61.9%

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

    Current EV/EBITDA of 50.4x 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 136.38-61.9%
    Exit multiple
    USD 283.74-20.7%
    Market price
    USD 357.61

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn36bn72bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 79.5bnUSD 98.8bnUSD 122.9bnUSD 152.9bnUSD 190.2bn+24.4%
    EBITUSD 31.6bnUSD 39.2bnUSD 48.8bnUSD 60.7bnUSD 75.5bn+24.4%
    NOPATUSD 29.2bnUSD 36.3bnUSD 45.1bnUSD 56.1bnUSD 69.8bn+24.4%
    Add depreciation & amortisationUSD 11.7bnUSD 14.5bnUSD 18.1bnUSD 22.5bnUSD 28.0bn+24.4%
    Less capital expenditureUSD -909.2mUSD -1.1bnUSD -1.4bnUSD -1.7bnUSD -2.2bn+24.4%
    Less increase in working capitalUSD -9.8bnUSD -12.2bnUSD -15.1bnUSD -18.8bnUSD -23.4bn+24.4%
    Free cashflow to firmUSD 30.2bnUSD 37.5bnUSD 46.7bnUSD 58.1bnUSD 72.2bn+24.4%
    Discount factor0.94530.84480.75490.67460.6028-
    Present valueUSD 28.5bnUSD 31.7bnUSD 35.2bnUSD 39.2bnUSD 43.5bn+11.1%
    Present Value Of The ForecastUSD 178.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.306Reported 1.457, pulled toward 1.0 (Blume)
    Cost of equity12.18%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 1707.1bn96.3% of capital
    Total debtUSD 65.1bn3.7% of capital, book value as a proxy
    Tax rate7.6%Effective, capped at statutory
    WACC11.90%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 136.38

    75% of EV

    Forecast FCFF, final year
    USD 72.2bn
    Capex at depreciation, working capital in reinvestment
    USD 93.5bn
    Less reinvestment at g/ROIC (13.3% of NOPAT)
    USD -12.4bn
    Capitalised
    USD 81.1bn
    ROIC (reported)
    18.9%
    Terminal value, undiscounted
    USD 883.6bn
    Terminal value, discounted
    USD 532.7bn
    Enterprise value
    USD 710.8bn
    Less net debt
    USD 49.0bn
    Equity value
    USD 661.9bn

    Exit at 20.0x EBITDA

    Value per shareUSD 283.74

    88% of EV

    Terminal value, undiscounted
    USD 2069.9bn
    Terminal value, discounted
    USD 1247.8bn
    Enterprise value
    USD 1426.0bn
    Less net debt
    USD 49.0bn
    Equity value
    USD 1377.0bn

    Spread between methods: 70%.

    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%
    9.90%168.44173.72179.67186.42194.19
    10.90%147.62151.31155.41159.99165.14
    11.90%130.87133.50136.38139.55143.06
    12.90%117.13119.02121.07123.29125.72
    13.90%105.65107.02108.49110.06111.76

    Outlined: this model. Green text: above today's price of 357.61. 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 year24.4%53.2%+28.9pp
    Discount rate11.9%6.5%-5.4pp
    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.