DCF Studio

    MCHP · NMS · Technology

    Microchip Technology Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 0.36

    Market price

    USD 73.27

    Implied upside

    -99.5%

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

    Wrong toolThis model values the shares at 0.5% 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.

    Current EV/EBITDA of 37.0x 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 0.36-99.5%
    Exit multiple
    USD 10.23-86.0%
    Market price
    USD 73.27

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn1bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 3.9bnUSD 3.2bnUSD 2.6bnUSD 2.2bnUSD 1.8bn-17.6%
    EBITUSD 874.9mUSD 720.5mUSD 593.4mUSD 488.6mUSD 402.4m-17.6%
    NOPATUSD 691.2mUSD 569.2mUSD 468.8mUSD 386.0mUSD 317.9m-17.6%
    Add depreciation & amortisationUSD 533.9mUSD 439.6mUSD 362.1mUSD 298.2mUSD 245.5m-17.6%
    Less capital expenditureUSD -138.7mUSD -114.2mUSD -94.0mUSD -77.5mUSD -63.8m-17.6%
    Less increase in working capitalUSD 25.8mUSD 21.2mUSD 17.5mUSD 14.4mUSD 11.8m+17.6%
    Free cashflow to firmUSD 1.1bnUSD 915.9mUSD 754.2mUSD 621.1mUSD 511.5m-17.6%
    Discount factor0.94460.84280.75200.67090.5986-
    Present valueUSD 1.1bnUSD 771.9mUSD 567.1mUSD 416.7mUSD 306.2m-26.5%
    Present Value Of The ForecastUSD 3.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.493Reported 1.736, pulled toward 1.0 (Blume)
    Cost of equity13.21%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 39.8bn87.8% of capital
    Total debtUSD 5.5bn12.2% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC12.08%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 0.36

    43% of EV

    Forecast FCFF, final year
    USD 511.5m
    Capex at depreciation, working capital in reinvestment
    USD 468.0m
    Less reinvestment at g/ROIC (20.7% of NOPAT)
    USD -96.9m
    Capitalised
    USD 371.1m
    ROIC (WACC floor)
    12.1%
    Terminal value, undiscounted
    USD 4.0bn
    Terminal value, discounted
    USD 2.4bn
    Enterprise value
    USD 5.5bn
    Less net debt
    USD 5.3bn
    Equity value
    USD 194.8m

    Exit at 20.0x EBITDA

    Value per shareUSD 10.23

    71% of EV

    Terminal value, undiscounted
    USD 13.0bn
    Terminal value, discounted
    USD 7.8bn
    Enterprise value
    USD 10.9bn
    Less net debt
    USD 5.3bn
    Equity value
    USD 5.6bn

    Spread between methods: 186%.

    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%
    10.08%1.811.841.861.891.92
    11.08%1.001.021.051.071.09
    12.08%0.310.340.360.380.40
    13.08%-0.27-0.25-0.23-0.21-0.19
    14.08%-0.77-0.75-0.74-0.72-0.70

    Outlined: this model. Green text: above today's price of 73.27. 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-17.6%38.4%+56.1pp
    Discount rate12.1%3.2%-8.8pp
    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.