DCF Studio

    LRCX · NMS · Technology

    Lam Research Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 63.98

    Market price

    USD 288.11

    Implied upside

    -77.8%

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

    AdjustedCapital expenditure runs at 3.5% of revenue against depreciation of 2.1%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 41.5x 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 63.98-77.8%
    Exit multiple
    USD 136.59-52.6%
    Market price
    USD 288.11

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn5bn9bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 25.6bnUSD 28.1bnUSD 31.0bnUSD 34.1bnUSD 37.5bn+10.1%
    EBITUSD 8.1bnUSD 8.9bnUSD 9.8bnUSD 10.7bnUSD 11.8bn+10.1%
    NOPATUSD 7.1bnUSD 7.8bnUSD 8.6bnUSD 9.5bnUSD 10.4bn+10.1%
    Add depreciation & amortisationUSD 535.3mUSD 589.1mUSD 648.3mUSD 713.5mUSD 785.3m+10.1%
    Less capital expenditureUSD -883.2mUSD -972.0mUSD -1.1bnUSD -1.2bnUSD -1.3bn+10.1%
    Less increase in working capitalUSD -333.8mUSD -367.3mUSD -404.3mUSD -444.9mUSD -489.7m+10.1%
    Free cashflow to firmUSD 6.4bnUSD 7.1bnUSD 7.8bnUSD 8.5bnUSD 9.4bn+10.1%
    Discount factor0.93840.82630.72750.64060.5641-
    Present valueUSD 6.0bnUSD 5.8bnUSD 5.7bnUSD 5.5bnUSD 5.3bn-3.1%
    Present Value Of The ForecastUSD 28.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.576Reported 1.859, pulled toward 1.0 (Blume)
    Cost of equity13.66%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 360.5bn99.0% of capital
    Total debtUSD 3.7bn1.0% of capital, book value as a proxy
    Tax rate11.9%Effective, capped at statutory
    WACC13.57%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 63.98

    64% of EV

    Forecast FCFF, final year
    USD 9.4bn
    Capex at depreciation, working capital in reinvestment
    USD 10.4bn
    Less reinvestment at g/ROIC (7.0% of NOPAT)
    USD -731.2m
    Capitalised
    USD 9.7bn
    ROIC (reported)
    35.6%
    Terminal value, undiscounted
    USD 89.6bn
    Terminal value, discounted
    USD 50.6bn
    Enterprise value
    USD 78.8bn
    Less net debt
    USD -1.8bn
    Equity value
    USD 80.7bn

    Exit at 20.0x EBITDA

    Value per shareUSD 136.59

    83% of EV

    Terminal value, undiscounted
    USD 252.0bn
    Terminal value, discounted
    USD 142.1bn
    Enterprise value
    USD 170.4bn
    Less net debt
    USD -1.8bn
    Equity value
    USD 172.3bn

    Spread between methods: 72%.

    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%
    11.57%73.5975.6377.8980.4083.22
    12.57%66.9368.5170.2472.1374.24
    13.57%61.4062.6363.9865.4467.04
    14.57%56.7157.7058.7659.9161.15
    15.57%52.7153.5054.3555.2656.24

    Outlined: this model. Green text: above today's price of 288.11. 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 year10.1%55.7%+45.7pp
    Discount rate13.6%4.9%-8.6pp
    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.