Is Linear Technology 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 Linear Technology 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?
- The current share price of Linear Technology is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
We assess Linear Technology'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)
Linear Technology has a total score of 0/6, 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 (8.94%).
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 Linear Technology 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 @ (3.89%)
||Extrapolated @ (3.89%)
Discounted (@ 8.5%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $675 × (1 + 2.5%) ÷ (8.51% – 2.5%)
Terminal value based on the Perpetuity Method where growth (g) = 2.5%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($10,032 / 240)
Value per share:
Current discount (share price of $62.43): -50%
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 = 8.51% = 2.47% + (0.803 * 7.53%)
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))
0.803 = 0.803 (1 + (1- 30%) (0%))
Levered Beta used in calculation = 0.803
- The risk free rate of 2.47% is from the 10 year government bond rate in United States.
- 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 Linear Technology expected to perform in the next 1 to 3 years based on estimates from 17 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 1 year.
Future Earnings growth analysis
Is Linear Technology expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are Linear Technology's annual earnings growth expected to exceed 3.6% over the next 3 years?
- After 1 year
- + 3 year earnings data not available.
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.
- Linear Technology is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.
Improvement & Relative to industry
- Expected to be above the Semiconductors industry average.
- A decline in Linear Technology's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess Linear Technology'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.
Linear Technology has a total score of 2/6, 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 Linear Technology 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 Linear Technology'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.
- Linear Technology's earnings growth has not matched the industry average in the past year.
- Linear Technology's 1 year earnings growth is negative.
- Linear Technology earnings have fallen over the past 5 years.
Linear Technology'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.
- Strong return on shareholders funds (ROE) last year.
- Linear Technology performed above the Semiconductors industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
Past performance checks
We assess Linear Technology'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.
Linear Technology has a total score of 3/6, 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 Linear Technology'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 Linear Technology's finances.
The net worth of a company is the difference between its assets and liabilities.
- Linear Technology is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- Linear Technology's cash and other short term assets cover its long term commitments.
This treemap shows a more detailed breakdown of Linear Technology'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
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.
- Linear Technology has no debt.
Financial health checks
We assess Linear Technology'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)
Linear Technology has a total score of 6/6, see the detailed checks below.
What is Linear Technology'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 Linear Technology dividends. Estimated to be 2.13% next year.
If you bought $2,000 of Linear Technology shares you are expected to receive $41 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 above low risk savings rate. (1.75%)
- Paying below the markets top dividend payers. (3.18%)
Upcoming dividend payment
Purchase Linear Technology on or before the 'Buy Limit' to receive their next dividend payment.
Dividends are usually paid every 3 or 6 months, you can time your share purchase to take advantage of upcoming dividend payments.
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 Linear Technology's earnings are paid to the shareholders as a dividend.
- Dividends paid are covered by net profit (1.6x coverage).
Future Payout to shareholders
- Dividends after 3 years are expected to be covered by net profit (2x coverage).
Income/ dividend checks
We assess Linear Technology'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 Linear Technology afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
Linear Technology has a total score of 5/6, see the detailed checks below.
What is the CEO of Linear Technology'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. Lothar Maier has been the Chief Executive Officer of Linear Technology Corporation since January 2005. Mr. Maier served as the Chief Operating Officer of Linear Technology Corp. from April 1999 to January 2005. He served as an Executive Vice President of Worldwide Operations, Senior Vice President and Vice President at Linear Technology Corp. He is a veteran of the semiconductor industry with more than two decades of management experience including significant expertise in global business management and operations. From 1983 to 1999, he was employed at Cypress Semiconductor Corporation in various management positions, including Senior Vice President and Executive Vice President of Worldwide Operations. He has been a Director of Linear Technology Corp. since September 2, 2005. He has been a Director of FormFactor Inc. since November 14, 2006. Mr. Maier holds a B.S. in Chemical Engineering in 1978 from the University of California at Berkeley.
- 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 Linear Technology management team:
- The average tenure for the Linear Technology management team is over 5 years, this suggests they are a seasoned and experienced team.
Co-Founder and Executive Chairman
Chief Executive Officer and Director
Chief Financial Officer
Vice President and General Manager of Power Products
Chief Operating Officer and Vice President
Board of Directors Tenure
Average tenure of the Linear Technology board of directors:
- The average tenure for the Linear Technology board of directors is over 10 years, this suggests they are a seasoned and experienced board.
Board of Directors
Co-Founder and Executive Chairman
Chief Executive Officer and Director
Recent Insider Trading
- Linear Technology insiders have sold more shares than they have bought in the past 3 months.
Who owns this company?
We assess Linear Technology'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)
Linear Technology 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.
Linear Technology Corporation designs, manufactures, and markets a line of analog integrated circuits worldwide. It offers amplifiers, high speed amplifiers, voltage regulators and references, interface circuits, data converters, battery stack monitors, silicon oscillators and Timer Blox, and phase locked loop synthesizers and clock distribution products. The company also provides SmartMesh embedded wireless sensor network products; isolated µModule transceivers; radio and microwave frequency circuits; power over Ethernet controllers; µModule power products; signal chain µModule products; and other linear circuits comprising buffers, power monitors, motor controllers, coulomb counters, diodes/bridges, hot swap circuits, comparators, sample-and-hold devices, timers, drivers, and filters. Its linear circuits are used in various applications, including factory automation, process control, industrial and laboratory instrumentation, security monitoring and complex medical devices, telecommunications, and networking products; automotive electronics, tablet, notebook, and desktop computers; computer peripherals, video/multimedia, military, space, and other harsh environment systems; and consumer products. The company markets its products primarily through direct sales staff and electronics distributors. Linear Technology Corporation was founded in 1981 and is headquartered in Milpitas, California.
|Name:||Linear Technology Corporation|
|Market Cap:||$15,006 million|
1630 McCarthy Boulevard, Milpitas, 95035, United States
Linear Technology employees.
|Sector:||Semiconductors and Semiconductor Equipment|