DCF Studio

    TXN · NMS · Technology

    Texas Instruments Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 39.09

    Market price

    USD 266.64

    Implied upside

    -85.3%

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

    AdjustedCapital expenditure runs at 24.9% of revenue against depreciation of 8.3%. 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 31.0x 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 39.09-85.3%
    Exit multiple
    USD 98.54-63.0%
    Market price
    USD 266.64

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 17.0bnUSD 16.3bnUSD 15.6bnUSD 15.0bnUSD 14.4bn-4.1%
    EBITUSD 6.9bnUSD 6.6bnUSD 6.3bnUSD 6.1bnUSD 5.8bn-4.1%
    NOPATUSD 6.0bnUSD 5.8bnUSD 5.6bnUSD 5.3bnUSD 5.1bn-4.1%
    Add depreciation & amortisationUSD 1.4bnUSD 1.4bnUSD 1.3bnUSD 1.2bnUSD 1.2bn-4.1%
    Less capital expenditureUSD -4.2bnUSD -4.0bnUSD -3.9bnUSD -3.7bnUSD -3.6bn-4.1%
    Less increase in working capitalUSD 95.5mUSD 91.6mUSD 87.9mUSD 84.3mUSD 80.9m+4.1%
    Free cashflow to firmUSD 3.3bnUSD 3.2bnUSD 3.1bnUSD 2.9bnUSD 2.8bn-4.1%
    Discount factor0.94810.85210.76590.68840.6187-
    Present valueUSD 3.2bnUSD 2.7bnUSD 2.4bnUSD 2.0bnUSD 1.7bn-13.8%
    Present Value Of The ForecastUSD 12.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.210Reported 1.314, pulled toward 1.0 (Blume)
    Cost of equity11.66%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 243.5bn94.5% of capital
    Total debtUSD 14.0bn5.5% of capital, book value as a proxy
    Tax rate12.3%Effective, capped at statutory
    WACC11.26%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 39.09

    73% of EV

    Forecast FCFF, final year
    USD 2.8bn
    Capex at depreciation, working capital in reinvestment
    USD 5.2bn
    Less reinvestment at g/ROIC (12.3% of NOPAT)
    USD -636.5m
    Capitalised
    USD 4.5bn
    ROIC (reported)
    20.3%
    Terminal value, undiscounted
    USD 53.1bn
    Terminal value, discounted
    USD 32.8bn
    Enterprise value
    USD 44.9bn
    Less net debt
    USD 9.2bn
    Equity value
    USD 35.7bn

    Exit at 20.0x EBITDA

    Value per shareUSD 98.54

    88% of EV

    Terminal value, undiscounted
    USD 140.8bn
    Terminal value, discounted
    USD 87.1bn
    Enterprise value
    USD 99.1bn
    Less net debt
    USD 9.2bn
    Equity value
    USD 90.0bn

    Spread between methods: 86%.

    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%
    9.26%49.7351.8354.2357.0060.22
    10.26%42.5644.0345.6747.5349.64
    11.26%36.8837.9339.0940.3741.81
    12.26%32.2833.0433.8734.7835.79
    13.26%28.4829.0429.6430.3031.01

    Outlined: this model. Green text: above today's price of 266.64. 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-4.1%40.6%+44.7pp
    Discount rate11.3%4.1%-7.1pp
    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.