DCF Studio

    KEYS · NYQ · Technology

    Keysight Technologies, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 50.34

    Market price

    USD 335.00

    Implied upside

    -85.0%

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

    Current EV/EBITDA of 50.3x 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 50.34-85.0%
    Exit multiple
    USD 113.10-66.2%
    Market price
    USD 335.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m474m947mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 5.4bnUSD 5.3bnUSD 5.3bnUSD 5.3bnUSD 5.3bn-0.3%
    EBITUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bnUSD 1.1bn-0.3%
    NOPATUSD 874.4mUSD 872.0mUSD 869.6mUSD 867.2mUSD 864.8m-0.3%
    Add depreciation & amortisationUSD 248.6mUSD 247.9mUSD 247.2mUSD 246.5mUSD 245.9m-0.3%
    Less capital expenditureUSD -167.4mUSD -166.9mUSD -166.5mUSD -166.0mUSD -165.6m-0.3%
    Less increase in working capitalUSD -8.3mUSD -8.3mUSD -8.3mUSD -8.3mUSD -8.2m-0.3%
    Free cashflow to firmUSD 947.3mUSD 944.7mUSD 942.0mUSD 939.4mUSD 936.8m-0.3%
    Discount factor0.94950.85600.77170.69570.6271-
    Present valueUSD 899.4mUSD 808.6mUSD 726.9mUSD 653.5mUSD 587.5m-10.1%
    Present Value Of The ForecastUSD 3.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.139Reported 1.208, pulled toward 1.0 (Blume)
    Cost of equity11.26%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 57.0bn95.4% of capital
    Total debtUSD 2.8bn4.6% of capital, book value as a proxy
    Tax rate20.9%Effective, capped at statutory
    WACC10.92%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 50.34

    62% of EV

    Forecast FCFF, final year
    USD 936.8m
    Capex at depreciation, working capital in reinvestment
    USD 961.5m
    Less reinvestment at g/ROIC (19.1% of NOPAT)
    USD -183.4m
    Capitalised
    USD 778.1m
    ROIC (reported)
    13.1%
    Terminal value, undiscounted
    USD 9.5bn
    Terminal value, discounted
    USD 5.9bn
    Enterprise value
    USD 9.6bn
    Less net debt
    USD 905.0m
    Equity value
    USD 8.7bn

    Exit at 20.0x EBITDA

    Value per shareUSD 113.10

    82% of EV

    Terminal value, undiscounted
    USD 26.8bn
    Terminal value, discounted
    USD 16.8bn
    Enterprise value
    USD 20.5bn
    Less net debt
    USD 905.0m
    Equity value
    USD 19.6bn

    Spread between methods: 77%.

    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%
    8.92%62.7364.1565.7767.6469.83
    9.92%55.2056.0657.0358.1159.33
    10.92%49.2649.7850.3450.9551.63
    11.92%44.4544.7445.0545.3845.73
    12.92%40.4840.6240.7640.9141.06

    Outlined: this model. Green text: above today's price of 335.00. 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 year-0.3%43.2%+43.5pp
    Discount rate10.9%3.7%-7.2pp
    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.