Is Analog Devices undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of Analog Devices to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
Amount off the current price Analog Devices is available for.
Share price is $83.69 vs Future cash flow value of $89.77
Current Discount Checks
For Analog Devices to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
- Analog Devices's share price is below the future cash flow value, but not at a significant discount (< 20%).
- Analog Devices's share price is below the future cash flow value, but not at a substantial discount (< 40%).
We assess Analog Devices's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Semiconductors industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Semiconductors industry average (and greater than 0)? (1 check)
Analog Devices has a total score of 2/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (63.85%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for Analog Devices is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
||Extrapolated @ (14.14%)
Discounted (@ 9.5%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $2,755 × (1 + 2.3%) ÷ (9.53% – 2.3%)
Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($33,004 / 368)
Value per share:
Current discount (share price of $83.69): 7%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 9.53% = 2.33% + (0.938 * 7.67%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.938 = 0.791 (1 + (1- 30%) (26.65%))
Levered Beta used in calculation = 0.938
- The risk free rate of 2.33% is from the 10 year government bond rate in US.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is Analog Devices expected to perform in the next 1 to 3 years based on estimates from 20 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is Analog Devices expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are Analog Devices's annual earnings growth expected to exceed 3.4% over the next 3 years?
- After 1 year
- After 3 years
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- Analog Devices is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.
Improvement & Relative to industry
- Expected to be less than the Semiconductors industry average.
- An improvement in Analog Devices's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess Analog Devices's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Analog Devices has a total score of 4/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has Analog Devices performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Analog Devices's growth in the last year to its industry (Semiconductors).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- Analog Devices's earnings growth has not matched the industry average in the past year.
- Analog Devices's 1 year earnings growth is negative.
- Analog Devices earnings have fallen over the past 5 years.
Analog Devices's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Poor return on shareholders funds (ROE) last year.
- Analog Devices performed worse than the Semiconductors industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) has been diminishing over 3 years.
Past performance checks
We assess Analog Devices's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Semiconductors industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Analog Devices has a total score of 0/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is Analog Devices's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up Analog Devices's finances.
The net worth of a company is the difference between its assets and liabilities.
- Analog Devices is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- Analog Devices's long term commitments exceed its cash and other short term assets.
This treemap shows a more detailed breakdown of Analog Devices's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- Low level of unsold assets
- Total debt is not covered by total short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (83%) compared to net worth is high (greater 40%).
- The level of debt compared to net worth has increased over the past 5 years (21% vs 83% today).
- Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
- Interest on debt is well covered by earnings (7.2x coverage).
Financial health checks
We assess Analog Devices's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
Analog Devices has a total score of 2/6, see the detailed checks below.
What is Analog Devices's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from Analog Devices dividends. Estimated to be 2.19% next year.
If you bought $2,000 of Analog Devices shares you are expected to receive $43 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying below low risk savings rate. (2.25%)
- Paying below the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Dividends per share have been stable in the past 10 years.
- Dividends per share have increased over the past 10 years.
Current Payout to shareholders
What portion of Analog Devices's earnings are paid to the shareholders as a dividend.
- Dividends paid are covered by net profit (1.2x coverage).
Future Payout to shareholders
- Dividends after 3 years are expected to be well covered by net profit (2.7x coverage).
Income/ dividend checks
We assess Analog Devices's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can Analog Devices afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
Analog Devices has a total score of 4/6, see the detailed checks below.
What is the CEO of Analog Devices's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. Vincent T. Roche, also known as Vince, has been the President of Analog Devices, Inc. since November 5, 2012 and has been its Chief Executive Officer since May 2013. Mr. Roche served as an Interim Chief Executive Officer of Analog Devices Inc. from March 29, 2013 to May 2013. He served as a Vice President of Sales and Strategic Market Segments Group at Analog Devices Inc. since October 2009 until November 2012. Mr. Roche served as a Vice President of Strategic Market Segments (SMS) Group at Analog Devices Inc. since October 29, 2009 until November 2012. He served as a Vice President of Worldwide Sales at Analog Devices, Inc. from March 2001 to October 29, 2009. In this role, he was responsible for direct customer sales, distribution and e-commerce for all product lines, as well as corporate marketing and public relations at Analog Devices. Mr. Roche began his career at ADI in 1988 as a senior marketing engineer in Limerick, Ireland. He served as Vice President and General Manager of Silicon Valley Business Units and Computer & Networking of Analog from 1999 to March 2001, served as its Product Line Director from 1995 to 1999 and also served as its Product Marketing Manager from 1988 to 1995. He has been Chairman of the Board of Acacia Communications, Inc. since May 15, 2017. He has been a Director of Acacia Communications, Inc. since June 1, 2016 and Analog Devices, Inc. since May 2013. Mr. Roche earned a BS in electrical engineering from Limerick University in Ireland.
- CEO's compensation has been consistent with company performance over the past year.
- CEO's compensation appears reasonable.
Management Team Tenure
Average tenure of the Analog Devices management team:
- The average tenure for the Analog Devices management team is over 5 years, this suggests they are a seasoned and experienced team.
Founder and Chairman
Chief Executive Officer
Chief Technology Officer and Senior Vice President
Strategic Advisor & Executive VP
Senior Vice President of Global Operations and Technology
Board of Directors Tenure
Average tenure of the Analog Devices board of directors:
- The average tenure for the Analog Devices board of directors is over 10 years, this suggests they are a seasoned and experienced board.
Board of Directors
Founder and Chairman
Chief Executive Officer
Recent Insider Trading
- Analog Devices insiders have sold more shares than they have bought in the past 3 months.
Who owns this company?
We assess Analog Devices's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
Analog Devices has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
Analog Devices, Inc. designs, manufactures, and markets a portfolio of solutions that leverage analog, mixed-signal, and digital signal processing technology, including integrated circuits (ICs), algorithms, software, and subsystems. It offers data converter products, which translate real-world analog signals into digital data, as well as translates digital data into analog signals; high-performance amplifiers to condition analog signals; and radio frequency ICs to support cellular infrastructure. The company also provides MEMS technology solutions, including accelerometers used to sense acceleration, gyroscopes to sense rotation, and inertial measurement units to sense multiple degrees of freedom. In addition, it offers isolators for various applications, such as universal serial bus isolation in patient monitors; and smart metering and satellite applications. Further, the company provides power management and reference products; and digital signal processing products for high-speed numeric calculations. Its products are used in electronic equipment, including industrial process control systems, medical imaging equipment, factory automation systems, patient monitoring devices, instrumentation and measurement systems, wireless infrastructure equipment, energy management systems, networking equipment, aerospace and defense electronics, optical systems, automobiles, and portable electronic devices. The company serves clients in industrial, automotive, consumer, and communications markets through a direct sales force, third-party distributors, and independent sales representatives in the United States, rest of North/South America, Europe, Japan, China, and rest of Asia, as well as through its Website. It has a collaboration with TriLumina Corp. to provide illuminator modules for automotive flash LiDAR systems. Analog Devices, Inc. was founded in 1965 and is headquartered in Norwood, Massachusetts.
|Name:||Analog Devices, Inc.|
|Market Cap:||$30,770 million|
One Technology Way, Norwood, 02062, United States
Analog Devices employees.
|Sector:||Semiconductors and Semiconductor Equipment|