DCF Studio

    LITE · NMS · Technology

    Lumentum Holdings Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 10.95

    Market price

    USD 930.91

    Implied upside

    -98.8%

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

    Wrong toolThis model values the shares at 1.2% of the market price. A gap that size is a modelling failure rather than a view - most often an unusable beta, a currency or units mismatch, or a cashflow base that does not represent the business. Read the figures below as diagnostics, not as a call.
    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.

    Current EV/EBITDA of 102.6x 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 10.95-98.8%
    Exit multiple
    USD 102.92-88.9%
    Market price
    USD 930.91

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -368616117-1843080580FY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 3.6bnUSD 4.3bnUSD 5.1bnUSD 6.1bnUSD 7.3bn+19.5%
    EBITUSD -229.0mUSD -273.7mUSD -327.0mUSD -390.7mUSD -466.8m-19.5%
    NOPATUSD -180.9mUSD -216.2mUSD -258.3mUSD -308.6mUSD -368.8m-19.5%
    Add depreciation & amortisationUSD 542.8mUSD 648.5mUSD 774.8mUSD 925.8mUSD 1.1bn+19.5%
    Less capital expenditureUSD -417.4mUSD -498.8mUSD -595.9mUSD -712.0mUSD -850.8m+19.5%
    Less increase in working capitalUSD -125.2mUSD -149.6mUSD -178.8mUSD -213.6mUSD -255.2m+19.5%
    Free cashflow to firmUSD -180.9mUSD -216.1mUSD -258.2mUSD -308.5mUSD -368.6m-19.5%
    Discount factor0.94350.84000.74790.66580.5928-
    Present valueUSD -170.7mUSD -181.5mUSD -193.1mUSD -205.4mUSD -218.5m-6.4%
    Present Value Of The ForecastUSD -969.2m

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.362Reported 1.541, pulled toward 1.0 (Blume)
    Cost of equity12.49%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 83.5bn98.0% of capital
    Total debtUSD 1.7bn2.0% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC12.32%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 10.95

    -288% of EV

    Forecast FCFF, final year
    USD -368.6m
    Capex at depreciation, working capital in reinvestment
    USD 145.9m
    Less reinvestment at g/ROIC (20.3% of NOPAT)
    USD -29.6m
    Capitalised
    USD 116.3m
    ROIC (WACC floor)
    12.3%
    Terminal value, undiscounted
    USD 1.2bn
    Terminal value, discounted
    USD 719.1m
    Enterprise value
    USD -250.1m
    Less net debt
    USD -1.1bn
    Equity value
    USD 817.1m

    Exit at 20.0x EBITDA

    Value per shareUSD 102.92

    115% of EV

    Terminal value, undiscounted
    USD 12.8bn
    Terminal value, discounted
    USD 7.6bn
    Enterprise value
    USD 6.6bn
    Less net debt
    USD -1.1bn
    Equity value
    USD 7.7bn

    Spread between methods: 162%.

    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%
    10.32%13.0413.1013.1613.2213.28
    11.32%11.8211.8711.9311.9812.03
    12.32%10.8610.9110.9511.0011.05
    13.32%10.0910.1410.1810.2210.26
    14.32%9.489.529.569.609.63

    Outlined: this model. Green text: above today's price of 930.91. 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
    Discount rate12.3%2.6%-9.7pp
    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.