The Henry Fund
Henry B. Tippie School of Management Jon Kerr [
[email protected]]
Linear Technology (LLTC) Linear Technology targets the high performance segment of the analog integrated circuit market with application-specific products that are not subject to commodity pricing like digital and standard analog integrated circuits. The cyclicality of the semiconductor industry will keep revenues down in calendar year 2015 but the company is positioned well in both the industrial and automotive segments and should see substantial revenue growth in 2016 due to the increasing data connectivity of these markets. However, the stock price rose 11% in the month of October, which limits the upside on this stock. Therefore, we recommend a no action on Linear Technology. Drivers of Thesis • Linear Technology has historically had strong cash flow generation with a long history of returning value to shareholders through both dividend payments and stock repurchases. They have averaged a 55% dividend payout ratio and a 69% total payout ratio since 2009. • The company has no debt on their balance sheet and they have a high level of liquidity based on their current ratio of 8.4 in 2015. • Linear Technology is a lean and well-run company dominating their peers in gross margins, operating margins, ROE, and ROIC. Risks to Thesis • If the current downturn in the industry does not end in Q4 2015 as expected, company revenues could be hit even harder than predicted. • Larger companies have broader product lines with greater technical service and support capabilities which could make major automobile parts supplies shy away from Linear Technology products. 2014 $1.91 11.25%
2015 $2.13 11.45%
2016E $1.97 -7.68%
2017E $2.17 10.26%
2018E $2.27 3.71%
LLTC
40
20
LLTC
10% 5% 0% -5% -10% -15% N
D
J
F
M
A
M
$10,996 244.5 97.0% 1.17 2.70% 10.9% 21.40 7.54 0.0% 46.28% 35.32% 29.44% 35.81%
Industry 35.8
30
15.4
10
Sector 35.3
21.4 21.8 20.5
17.1
17.3
13.2
0 P/E
12 Month Performance 15%
No Action $45-49 $46.92 $47.83 $41.03 $44.31 $36.41 – 49.57 $42.61
Target Price Henry Fund DCF Henry Fund DDM Relative P/E Multiple Price Data Current Price 52wk Range Consensus 1yr Target Key Statistics Market Cap (M) Shares Outstanding (M) Institutional Ownership Five Year Beta Dividend Yield Est. 5yr Growth Price/Earnings (TTM) Price/Sales (TTM) Debt/Equity Profitability Operating Margin Net Profit Margin Return on Assets (TTM) Return on Equity (TTM)
Earnings Estimates 2013 $1.75 0.62%
November 17, 2015 Stock Rating
Information Technology – Semiconductors Investment Thesis
Year EPS Growth
ROE
Profit Margin Source: Yahoo Finance
Company Description Linear Technology Corporation designs, S&P 500 manufacturers, and markets a diverse line of analog integrated circuits for companies worldwide. They target high performance application-specific products in the analog semiconductor market. The company’s products bridge the gap between the analog world and digital electronics in communications, networking, industrial, computer, medical, Source: Yahoo Finance automotive, instrumentation, consumer, and military and J J A S O aerospace systems.
Important disclosures appear on the last page of this report.
EXECUTIVE SUMMARY Linear Technology is a leading supplier of highperformance analog integrated circuits. The company operates in the cyclical semiconductor industry, which is expected to have a slight downturn in the remaining calendar year of 2015 before rebounding in calendar year 2016. Linear Technology is expected to have a decline in their FY2016 revenues before increasing in FY2017 due to the industry cyclicality. Linear Technology competes in the analog sector of the semiconductor industry, which is characterized by longer design cycles, longer product lives, and lower capital expenditures than the digital sector. Therefore, companies in the analog sector tend to have higher profit margins than companies competing in the digital sector. Linear Technology has consistently had industry leading margins. We have modeled gross profit margins to maintain historical levels of around 75% with operating profit margin decreasing slightly from 46.3% in 2015 to 45.5% into 2020.
(1)
integrated circuit market. The company designs and manufactures a vast portfolio of different integrated circuits (IC) for thousands of different customers globally, with no single customer accounting for more than 10% of company revenue. The products Linear Technology produces link the analog world to the digital world. For example, their products may measure light, sound, pressure, or power and output a digital representation of that input. Linear Technology is a highly profitably company with 116 consecutive quarters of positive cash flow. In 2010, Forbes magazine called the company “one of the tech industry’s most profitable companies.” (2)
Revenue Types
FY 2015 % Revenue per Segment 3.0%
Automomve 9.0%
We expect revenue growth for the company to come from the industrial and automotive segments due to the growing number of devices connecting to the Internet of Things and from the increased demand for hybrid and electric vehicles as well as the increasing amount of electronics being added to vehicles. The company has a long track record of high dividend payments and consistent dividend growth. The company has historically had a dividend payout ratio of around 55% and a total payout ratio of around 65% with that number increasing to 75% the last four years. We expect the total payout ratio to average 80% into 2020 because of the company’s large amount of cash and short-term marketable securities on its balance sheet, $4.92 per share. Even with the expected growth after FY2016 and the high value returned to shareholders each year, we recommend “no action” on Linear Technology. The stock price has risen approximately 11% since the time coverage was initiated on the company and we feel there is limited upside left in the price of the stock.
COMPANY DESCRIPTION
Industrial
6.0%
43.0% 19.0%
Communicamons Computer
20.0%
Military/Harsh Environment Consumer
Source: Linear Technology Year End 2015 Earnings Call
Linear Technology has six operating segments: Industrial, Automotive, Communications, Computer, Military/Harsh Environment, and Consumer. The company targets the Industrial and Automotive segments, as these are the fasting growing markets in the analog industry. These two markets are also characterized by longer design cycles and longer product lives and customers in these markets are more likely to pay a premium for Linear Technology’s products and services. Linear Technology’s main revenue segment is the Industrial segment. This segment has consistently accounted for over 40% of the company’s revenue since 2011. The industrial segment serves a very diverse customer base with applications ranging from DNA and blood analyzers to solar power to factory automation. Demand for this segment is determined by global
Linear Technology Corporation was founded in 1981 in Milpitas, California. The company targets the high performance segment of the $47.5 billion analog Page 2
macroeconomic factors and is highly correlated to the Global GDP. We expect Industrial segment revenues to decline 3% in 2016. However, we believe segment revenues will rebound in 2017 and into 2020 with revenues growing at a 5.1% five-year CAGR.
this is a market the company “does not actively chase.” Because of this, we have modeled the Consumer segment’s revenue to grow at a 1.0% CAGR into 2020 but to slightly decrease as a percent of overall revenue to 2.5%.
In 2015, the Automotive segment surpassed the Communications segment to become the company’s second largest segment generating 20% of company revenue. This segment is experiencing the most growth for the company. Since 2010, the Automotive segment has grown at an 18% CAGR. The growth is due to the increasing amount of electronics in cars. In the future, the increase in hybrid and electric cars as well as Internet equipped automobiles will drive growth in this segment. In 2016, we expect an increase of 5% in segment revenue before a 13% increase in 2017. We expect segment revenues to grow at an 8.7% CAGR into 2020.
Geographic Diversification
The company’s third largest segment is the Communications segment, accounting for 19% of revenue in 2015. This segment includes ICs for mobile phones, Ethernet and networking products, and wireless radios. Historically, sales in this segment have been very cyclical. In 2011, Communications segment revenues were $341 million before declining 21% to $269 million in 2013. We expect revenues to once again decline for this segment in 2016, decreasing 4%. However, we do expect future growth for the segment due to increasing penetration of smartphones with overall revenues increasing at a 2.3% five-year CAGR. The next largest segment is the Computer segment. In 2015, this segment accounted for 9% of company revenue. Products in this segment are used in notebooks, desktops, tablet PCs, servers, and printers. Revenues in this segment had been steadily declining from 2011 to 2014. However, in 2015 revenues grew by 6%. In 2016, we expect revenues to decline by 6%. The increased adoption of the tablet PC will generate slight growth in the future. We have modeled revenue growth for the Computer segment to increase at a 1.0% CAGR into 2020. The Military/Aerospace/Harsh Environment segment accounted for 6% of total company revenue in 2015. We expect sales in this segment to decrease 6% in 2016 mainly due to a decrease in government spending. Overall we expect the segment to grow at a 1.1% CAGR into 2020. The Consumer segment accounted for 3% of total company revenue in 2015. Management has stated that
Linear Technology segments their revenue into four different regions. Domestic revenues consistently account for around 28% of total revenue.
FY 2015 Regional Sales Europe 27.7%
19.8% Japan 15.5%
37.0%
Rest of World (ROW) North America
Source: Linear Technology 2015 10-K
(3)
More than 85% of Linear Technology’s manufacturing is performed at two U.S. locations. The company’s export sales are billed and payable in US dollars. Thus export sales are not directly subject to fluctuating currency exchange rates. The strengthening of the U.S. dollar results in Linear Technology’s products being more expensive for some international customers. The adverse effect to revenue may be partially offset in operating expenses since the company generally incurs its foreign operating expenses in the corresponding local currency.
RECENT DEVELOPMENTS Q1 2016 Earnings On October 13, 2015, Linear Technology announced their first quarter of FY2016 results. Quarterly revenue decreased 7.9% year-over-year to $341.9 million. The company’s net income of $112.0 million decreased 13.4% from the first quarter of FY2015. These numbers are weak when compared to last year. However, the results were expected and matched consensus analyst estimates of $0.46 per share. Management has stated they believe
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this decrease in revenues is an expected correction and will be relatively short lived. It is management’s view that this down cycle will not be prolonged and customer inventories will be rebalanced by Q3. The company gave positive revenue guidance for Q2 with revenues increasing 0-3% from Q1. Analysts were expecting a 1-2% decline from Q1 so the street viewed this guidance very positively as the stock price increased 6.2% the day following the earnings release.
2015 Dividend Increase
Connected Automobiles A connected car has internet access providing the driver with multiple diagnostic options such as engine controls, automatic crash notifications, and safety alerts. Each of these diagnostic readings requires multiple analog ICs to perform the measurement. By 2020, Gartner estimates there will be 25 billion connected vehicles globally, a 38% CAGR from 2015. (5) These vehicles will provide new invehicle services and automated driving capabilities.
Number of Connected Automobiles Worldwide
On January 13, 2015, Linear Technology announced an 11% increase in its quarterly dividend payment from $0.27 to $0.30. 2015 marked the 23rd consecutive year that Linear Technology has increased its dividend. Billions of Automobiles
30.0
Dividend Payment Growth $2.50 $2.00 $1.50
25.0
25.0 20.0 15.0 10.0 5.0
3.8
4.9
2014
2015
0.0
$1.00
Source: Gartner
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
EPS
Annual Dividend/Share Source: Nasdaq
(4)
Since 2009, the company has averaged a 55% dividend payout ratio. In the last four years that number has increased to 57% with the dividend payment per share growing at a 5.2% CAGR.
INDUSTRY TRENDS Linear Technology and other analog IC manufacturers are in a unique position as the world becomes more and more connected. The digitization and connectivity of devices will drive analog sales.
(5)
Electric and Hybrid Cars
$0.50 $-
2020*
In the FY2015 earnings call, Linear Technology management stated that their battery monitoring products are driving growth in the automotive segment due to hybrid and electric cars. By 2023, sales of electric vehicles are expected to make up 2.4% of total worldwide light-duty vehicles sales. According to a Navigant Research study, global sales for light duty electric vehicles is expected to increase from 2.7 million in 2014 to 6.4 million in 2023, a 10% CAGR. (6) The growth in connected cars along with the increase in hybrid and electric vehicles will continue to drive sales in the automotive segment for Linear Technology. These new capabilities and benefits will require added electronic hardware, which will include numerous analog sensors developed by analog IC manufacturers. We expect revenue’s for Linear Technology’s automobile segment to increase at an 8.7% CAGR into 2020.
Page 4
Internet of Things The Internet of Things (IoT) is a network of devices that communicate with one another sharing diagnostic data and other measurements creating smart homes and eventually smart cities. The number of IoT connected devices is expected to increase 23.5% CAGR from 2015 to 2020. The number of devices is expected to increase from 13.4 billion to 38.5 billion during those years. (7) The industrial sector, which includes agriculture, smart buildings, and smart grid applications, will drive the majority of the growth. For example, John Deere is connecting farm machinery and irrigation systems to soil nutrient sources with information on weather, crop prices, and commodity futures to optimize overall farm performance. As well, Michelin is placing sensors inside tires that can coach truck fleet drivers to drive in a more fuel-efficient manner. The increase in connected devices will require numerous analog sensors to measure the analog world and convert it to digital data that can easily be transmitted between devices. The Industrial segment is currently the largest segment for Linear Technology. With the growth of the IoT connected devices we expect the Industrial segment to continue to be Linear Technology’s largest segment and grow at a 5.1% CAGR into 2020.
by the increased adoption of smartphones among mobile phone users. Smartphones are expected to account for 80% of mobile phone shipments in 2018 with Asia and other emerging markets being the largest contributors to the growth. (9) With this expected growth, we have modeled Linear Technology’s Communications segment to increase at a 2.3% five-year CAGR.
PC Sales The introduction of the tablet and large screen smartphones has had an adverse affect on PC and laptop sales, which have been declining since 2011. According to IDC, Q2 2015 PC shipments for the top 5 vendors decreased 11.8% over the past year. IDC is forecasting overall PC shipments to remain steady in the near future with growth of zero to -3%. (10)
Global PC Shipments 400
364
349
350
315
308
2013
2014
300 Millions of units
282
279
282
250 200 150 100 50
Smartphone Growth
0 2011
Worldwide Mobile Phone Shipments
2012
2015* 2016* 2019* Source: Statista
(11)
Due to the expected decline in the near term and slow growth in the long term, we have modeled Computer segment revenues to increase at a 1.0% CAGR from 2015 to 2020.
MARKETS AND COMPETITION
Source: S&P NetAdvantage
(9)
The smartphone industry has experienced a large amount of growth in recent years. In 2014, smartphone shipments grew 27.6% from the previous year. However, growth of shipments in the industry is expected to slow to an 11.3% increase in 2015. Even with slowing growth, global shipments are expected to reach 1.9 billion by 2019, an 8.2% 4-year CAGR. (8) The growth is being caused
The analog integrated circuit industry is unique to the rest of the semiconductor industry as its products solve a specific problem and are not easily commoditized. Because each product is unique and not easily replaced with a competitors product, when an analog supplier wins a spot in a customers new product design, the price tends to be fixed for the life of the product. This makes for more price stability than digital IC markets, which is subject to commodity pricing pressure. Companies in the analog IC industry have smaller capital requirements than digital circuit designers. Digital circuit designs require very dense circuits, which minimize
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device size and maximize speed. These designs require expensive wafer fabrication equipment. Analog circuit designers are not concerned with size and focus on precise matching and placement of circuit elements. Therefore, manufacturing of analog integrated circuits generally requires smaller capital expenditures and less frequent replacement of manufacturing equipment because the equipment will not become obsolete as quickly as digital IC manufacturing equipment. The analog IC industry is a highly fragmented industry. The top ten companies in the industry account for only 58% of the total industry sales, with industry leader Texas Instruments accounting for around 18% of market share. Company
Revenue
Market Share
Texas Instruments*
$8,104*
18%
ST
$2,836
6%
Infineon
$2,770
6%
Analog Devices
$2,615
Skyworks Solutions
Texas Instruments is the largest player in the overall analog market. Texas Instruments does compete in other markets in the semiconductor industry but analog accounts for 62% of their revenue. Linear Technology is a medium sized company in the analog IC market space with a market cap of $11 billion. Linear Technology is among the most profitable companies in the entire semiconductor industry, which is a testament to strong leadership in the company. Mkt Cap ($B)
P/E (ttm)
Price / Sales (ttm)
Price / CF (ttm)
Price / Book
Texas Instruments
58.46
20.3
4.43
14.84
5.39
Analog Devices
19.35
25.1
5.51
18.11
3.25
Infineon Technologies
12.73
17.1
2.13
9.38
2.21
Maxim Integrated
11.53
48.9
4.35
14.47
4.32
6%
Linear Technology
11.00
21.4
7.54
18.58
6.89
$2,570
6%
4.79
23.6
1.42
9.33
2.70
Maxim
$2,035
4%
NXP
$1,730
4%
ON Semiconductor Fairchild Semiconductor
1.47
10.91
1.71
Linear Technology
$1,437
3%
Intersil
1.88
35.9
3.47
26.61
1.95
On Semi
$1,291
3%
0.409
16.7
1.17
Renesas $910 *Company revenues from analog IC sales only
IXYS Corporation
2.07
-
2% (12) Source: IC Insights
While it is a fragmented industry, the barriers to entry for new companies are huge. There are high startup costs and significant capital investments required for the development of a technology to compete against existing players in the analog IC industry.
Peer Comparison The analog IC industry is expected to have sales of $47.5 billion in 2015 and account for 16.8% of the total semiconductor industry sales. (1) Linear Technology distinguishes itself from other IC manufacturers by the creativity of their individual design engineers, smaller capital requirements and market diversity. Linear Technology states in their 10-K that their four main competitors are Texas Instruments, Maxim Integrated Products, Analog Devices, and Intersil. These companies as well as Linear Technology all compete in the same markets segments but they prioritize the market segments differently. Texas Instruments and Maxim focus most of their efforts on the Consumer Electronics segment with Industrial and Communication Equipment being their second and third priority markets. Analog Devices is very similar to Linear Technology in that
Industrial, Automotive, and Communications are their top three market segments.
8.24 1.46 Source: Factset
Gross Margin
Op Margin
Texas Instruments
54.5
30.0
26.2
19.2
10.4
Analog Devices
62.9
29.0
13.3
11.2
19.5
Infineon Technologies
38.1
13.4
12.3
11.8
12.7
Maxim Integrated
56.7
20.7
8.7
6.1
22.6
Linear Technology
75.9
46.3
35.8
35.8
18.1
ON Semiconductor Fairchild Semiconductor
32.2
8.6
12.3
7.9
11.6
32.5
6.0
-2.8
-2.4
11.6
Intersil
54.1
14.0
5.7
5.7
22.4
IXYS Corporation
28.3
8.2
8.8
8.5 7.9 Source: Factset
ROE
ROIC
R&D % Rev
Company’s that survive in the industry optimize ROIC. Linear Technology is one of the few company’s in the industry that still owns and operates it’s own fabrication facilities rather than outsourcing these activities. This has allowed Linear Technology to stream line its production process and create an ROIC of 35.8%, which dominates the peer group with Texas Instruments being the closest competitor at 19.2%. High research and development expense is a common characteristic among all analog IC manufacturers. Linear Technology spends more on R&D as a percent of revenue
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than the overall peer average but their ratio is less than three out of four of their main competitors.
600.0 000's of USD
10.0%
2015 Revenue per Employee 7.9%
10.4%
11.6%
15.0%
11.6%
12.7%
18.1%
19.5%
20.0%
22.4%
25.0%
22.6%
2015 R&D % of Revenue
Linear Technology is in the middle of the pack when it comparing revenue generated per employee. They are very similar to Analog Devices, generating nearly $300K per employee. Intersil and Texas Instruments lead this category generating $545K per employee and $420K per employee, respectively.
5.0% 0.0%
500.0 400.0 300.0 200.0 100.0 0.0
Source: Mergent Online
While Linear Technology lags its direct peers slightly in R&D expenses, they dominate in profitability. Linear Technology consistently has industry-leading gross margins. A combination of competing in the high performance segment of the analog market, owning their own foundries, and strong management has allowed Linear Technology to maintain a gross margin of 75.9% and an operating margin of 46.3% in 2015.
2015 Gross and Operabngs Margin Gross Margin
Source: Mergent Online
However, when comparing operating income per employee, Linear Technology and Texas Instruments dominate the peer group. Linear Technology leads with $140K per employee with Texas Instruments generating $127K per employee. This result is expected since Linear Technology has much higher margins than the peer group.
2015 Operabng Income per Employee
Operamng Margin
80.0% 70.0% 000's of USD
60.0% 50.0% 40.0% 30.0% 20.0% 10.0%
160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0
0.0%
Source: Mergent Online
Source: Bloomberg
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ECONOMIC OUTLOOK Linear Technology tends to sell its products to original equipment manufacturers and not direct to consumers. The target markets of the company are the Industrial and Automotive markets, which collectively accounted for 63% of company revenue in FY 2015. While Linear Technology does not specifically target the consumer product markets, a significant portion of their revenue is derived from sales of their products that are used in consumer products. The semiconductor industry is a cyclical industry. The industry tends to perform best after the aggregate bookto-bill ratio has reached a trough. (13) Due to Linear Technology’s short lead-times and quick production processes, management does not believe its backlog is representative of actual sales for a succeeding period. However, the book-to-bill ratio of the industry can give a good indication when the industry as a whole will be in a period of expansion verses contraction. A book-to-bill below one indicates a period of contraction while a ratio above one indicates a period of expansion. In May and June of 2015 the book-to-bill ratio for the industry was around 0.98 but has rebounded since. This follows Linear Technology management’s guidance that the industry contraction seen this summer was going to be short.
Semiconductor Industry Book-toBill Rabo 1.15 1.10
Since the Automotive segment is the company’s second largest segment and has seen the most growth in recent years, vehicle sales are a good indication of growth for Linear Technology. Light vehicle sales are expected to increase at a 4.3% CAGR into 2015 to 2020.(15)
Outlook on Worldwide Light Vehicle Sales Sales in millions of units
120 100 80
100 104 95 90 84 87 77 81
107 111
60 40 20 0
Source: KPMG
Linear Technology’s products are used in a variety of end products and 51% of company’s revenues come from markets that create consumer products, including automobiles, computers, and mobile phones. When consumer spending is down, sales for these products will also be down. Personal Consumption Expenditures have been on the rise since 2009 and have maintained approximately 3% growth per year. High personal consumption expenditure is a good indication for growth in Linear Technology revenues.
1.05
Personal Consumpbon Expenditure - Percent Change from Year Ago
1.00
2.0
Sep-15
Jun-15
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
0.0
Dec-13
1.0 Sep-13
One of the four primary components of the GDP is corporate spending, which will drive sales in the Industrial segment of Linear Technology. In the near term, we expect the Real GDP growth rate to be 2.7% and increasing to 3% over the next two years.
3.0
Jun-13
4.0
Mar-13
(14)
5.0
Dec-12
Source: Semi.org
6.0
Sep-12
0.90
Percent Change from Year Ago
0.95
Source: FRED
(15)
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(16)
CATALYSTS FOR GROWTH
water usage, which could affect production output or increase cost of goods sold. An increase in COGS would impact operating margin if they were not able to pass along a price increase to customers.
Increasing Presence in Automotive Market The predicted growth in the automotive market presents a significant growth opportunity for Linear Technology. The company currently has a strong presence in the automotive market but with the expected surge in car electronics and upturn in demand for hybrid and electric vehicles, Linear Technology could gain significant revenue growth by increasing its presence in the automotive market.
Retaining Key Employees In their 2015 annual report, Linear Technology states that one characteristic that distinguishes them from competitors is the creativity of individual design engineers. They require engineers skilled in the art and science of analog circuit design. Engineers require numerous years of experience to become proficient at analog design. In FY2015, the company had 1,289 employees involved in research, development, and engineering related functions. Nearly 30% of their employee population is involved in new product design. In order to continue to grow their product portfolio, Linear Technology must retain key design engineers as well as recruit and develop new talent within the organization.
INVESTMENT POSITIVES • Linear Technology has historically had strong cash flow generation with a long history of returning value to shareholders through both dividend payments and stock repurchases. • Linear Technology has no debt on their balance sheet and has a high level of liquidity based on their extremely high current ratio of 8.4 in 2015. • Linear Technology is a lean and well run company. They have industry leading gross margins, operating margins, and ROE.
INVESTMENT NEGATIVES • 85% of Linear Technology’s manufacturing is located in California and Washington. California is in its fourth year of drought. The fabrication process consumes a significant amount of water. The company could see rate increases or mandatory reductions in
• The stock price has increased approximately 11% since we began coverage on Linear Technology. Because of the significant increase in price, the stock has limited upside.
VALUATION We used a Discounted Cash Flow (DCF), Dividend Discount Model (DDM), and Relative Price to Earnings (P/E) analysis to value Linear Technology. Through the valuation process we calculated a stock price range of $45 to $49 for the company. Linear Technology generates revenue through six different segments. The Computer segment is declining due to increased adoption of large screen smartphones. The Military/Harsh Environment segment is going to see limited growth due to decreased government spending. The consumer segment is not a market that the company attempts to generate growth in. The main revenue generators for the company are the Industrial, Automotive, and Communications segment. Together these three segments have accounted for more than 75% of company revenue since 2011 and 82% of company revenue in 2015 so we have focused our valuation on these segments. We expect significant growth in the Automotive segment due to an increase in the amount of electronics in cars from growing popularity in Hybrid and Electric vehicles and the increasing connectivity of cars. We expect revenues for the Automotive segment to increase at an 8.7% five-year CAGR and account for 24% of company revenue in 2020. Due to the number of Internet of Things connected devices we expect the Industrial segment to grow at a 5.1% CAGR into 2020 and still be the largest revenue generating segment at 44% of overall company revenue. We expect the Communications segment to increase at a 2.3% five-year CAGR due to the increase adoption of smartphones. With slower growth than the Industrial and Automotive segments, we expect the Communications segment percentage of overall revenue to shrink from 19% in 2015 to 17% in 2020. We expect these three segments to increase from 82% of company revenue in 2015 to 85% of revenue in 2020. Overall, we have modeled total company revenues to increase at a 4.7% CAGR from 2015 to 2020.
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The gross profit margin for the company has consistently been above 74% since 2003. In 2015, gross profit was 75.9% of revenue. We have modeled gross profit margins to drop slightly in 2016 to 75.0% and then maintain 75.5% into 2020. R&D expenses for Linear Technology have averaged around 18.2% of revenue the last three years. We expect this trend to continue and have modeled R&D expenses of 18.3% of revenue through 2020. SG&A expenses as a percent of revenue averaged 11.6% from 2013 through 2015. We believe this level of expense will continue and have modeled SG&A expenses of 11.7% of revenue from 2016 to 2020. The company has consistently had net profit margins above 30% since the mid-1990s. In 2015, the net profit margin was 35.3%. We have modeled the net profit margin to decrease to 33.0% in 2016 with net profit margins maintaining approximately 33.3% into 2020.
Gross Profit Margin
Net Profit Margin Source: Linear Technology 2015 10-K
We have estimated earnings per share to be $1.97 in 2016 and $2.17 in 2017 before increasing to $2.64 in 2020. The 2016 and 2017 EPS estimates are above consensus analyst estimates of $1.93 and $2.14, respectfully. Our EPS estimates are more optimistic than consensus analyst because we believe analysts are forecasting the current industry downturn to last longer than expected. We have followed management’s guidance in our assumption and feel sales will begin to pick back up the remainder of FY2016.
$2.50 $2.40 $2.30 $2.20 $2.10 $2.00 $1.90 $1.80 $1.70 $1.60 $1.50 2012 2013 2014 2015 2016E 2017E 2018E Analyst High Est.
Analyst Low Est.
Henry Fund Est. Source: FactSet
In years of slow growth, Linear Technology has historically limited capital expenditures. We are expecting revenues to decline 2.1% in 2016 and therefore we are predicting capital expenditures to increase by only $28.8 million, 2.8% growth, in 2016. In 2017, we have modeled revenues to increase by 8.2% from 2016 and therefore have modeled capital expenditures to increase by 6.4%, which is in line with historic growth rates. Overall, we have modeled capital expenditures to grow at a 5.7% CAGR into 2020. As previously stated, we valued Linear Technology using DCF, DDM, and relative P/E analysis using the above assumptions. The DCF model computed a price of $46.92, the DDM model computed a stock price of $47.83, and the relative P/E analysis computed a price of $41.03.
2020E
2019E
2018E
2017E
2016E
2015
2014
2013
2012
2011
2010
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00%
2009
Profit Margins
Linear Technology EPS Esbmate
We did not agree with the relative P/E analysis. Linear Technology has a similar P/E ratio as nearly all of its peers. However, Linear Technology has industry leading margins and should trade at a premium compared to its peers. We do not believe the market accurately values the profitability of Linear Technology. The DDM model computed a price of $47.83 and verifies our DCF model price. Linear Technology has a long history of dividend payments and fairly consistent dividend growth and consistent dividend payout ratio. The company maintains approximately a 55% dividend payout ratio each year. We modeled an average dividend payout ratio of around 59% for the next five years.
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Dividend Payout Rabo Per Year
margins should be monitored to see if this strategy allows them to increase their profitability compared to Linear Technology.
70.00%
Industry Downturn
60.00%
Linear Technology competes in a cyclical industry. Management has stated they feel the current downturn will be short lived. We have modeled revenues to decline 2.1% in 2016 and then increasing 8.2% in 2017. The overall industry book-to-bill ratio should be monitored as it can give a good indication of the direction the industry is headed. If the downturn lasts longer than expected, Linear Technology may have a difficult time raising their dividend for the 18th consecutive year, which could significantly hurt the share price as investors have come to expect a dividend increase of at least 4% every year.
50.00% 40.00% 30.00% 20.00%
Source: Mergent Online
Over last ten years, earnings per share have risen an average of 6.7% per year. We chose a continuing value growth of earnings per share to be 5%. We feel this is a reasonable number given the actual EPS growth throughout the history of the company. The DCF model calculated a price of $46.92. We based our price range of $45 to $49 on sensitivity analysis around our DCF model. There are currently 24 analysts covering Linear Technology with a target price range of $38 to $52 with a median target price of $42.61. Our price range is on the high side of analyst estimates but within the range. Our price range is a 1.6% to 10.6% premium over the current stock price. We believe the industry down turn in 2016 will be shortlived and also believe Linear Technology will see significant growth in both the automotive and industrial segments coming out of the down turn. Therefore, we feel our price range of $45 to $49 is justified.
KEYS TO MONITOR Competitor Profit Margins
REFERENCES 1. EETimes, 12/3/2014, “Chip Market Forecast Raised for 2014, 2015” http://www.analog-eetimes.com/en/chip-marketforecast-raised-for-20142015.html?cmp_id=7&news_id=222906861 2. Forbes, 8/20/10, “Long Live Analog” http://www.forbes.com/2010/08/19/linear-lotharmaier-intelligent-technology-analog.html 3. Linear Technology 2015 10-K 4. Linear Technology Corporation Dividend Date & History http://www.nasdaq.com/symbol/lltc/dividendhistory 5. Gartner, “By 2020, a Quarter Billion Connected Vehicles Will Enable New In-Vehicle Services and Automated Driving Capabilties,” January 26, 2015 http://www.gartner.com/newsroom/id/2970017 6. Navigant Research, “Electric Vehicle Market Forecasts,” October 23, 2014 http://www.navigantresearch.com/research/electricvehicle-market-forecasts 7. Juniper Research, “Internet of Things Connected Devices to Almost Triple to Over 38 Billion Units By 2020,” July 28, 2015 http://www.juniperresearch.com/press/pressreleases/iot-connected-devices-to-triple-to-38-bn-by2020 8. Statista, “Global smartphone shipments forecast from 2010 to 2019” http://www.statista.com/statistics/263441/globalsmartphone-shipments-forecast/
Linear Technology has been able to maintain industry leading profit margins for the past decade. There is an industry trend of companies outsourcing the semiconductor manufacturing operations and becoming dedicated design houses. By doing this, companies are able to focus all their resources on core designing competencies. Linear Technology has not followed the industry trend and only outsources approximately 15% of their fabrication and manufacturing. Competitor profit Page 11
Linear Technology Incorporated Revenue Decomposition Fiscal Years Ending 30-Jun Industrial Automotive Communications Computer Military/Harsh Environment Consumer Total Revenue
2013 538,539 217,980 269,270 141,046 76,934 38,467 1,282,236
2014 597,006 263,793 277,677 124,955 83,303 41,652 1,388,386
2015 634,310 295,028 280,276 132,763 88,508 44,254 1,475,139
2016E 615280 309779 269065 124797 83198 41599 1,443,719
2017E 664503 350050 287900 128541 87358 43263 1,561,615
2018E 684438 367553 290779 131111 88231 43696 1,605,808
2019E 773415 430037 302410 135045 90878 45006 1,776,791
2020E 812086 447239 314506 139096 93605 46357 1,852,888
Industrial Automotive Communications Computer Military/Harsh Environment Consumer % Total Revenue
42.00% 17.00% 21.00% 11.00% 6.00% 3.00% 100.00%
43.00% 19.00% 20.00% 9.00% 6.00% 3.00% 100.00%
43.00% 20.00% 19.00% 9.00% 6.00% 3.00% 100.00%
42.62% 21.46% 18.64% 8.64% 5.76% 2.88% 100.00%
42.55% 22.42% 18.44% 8.23% 5.59% 2.77% 100.00%
42.62% 22.89% 18.11% 8.16% 5.49% 2.72% 100.00%
43.53% 24.20% 17.02% 7.60% 5.11% 2.53% 100.00%
43.83% 24.14% 16.97% 7.51% 5.05% 2.50% 100.00%
Industrial Automotive Communications Computer Military/Harsh Environment Consumer Total Revenue Growth Rate
3.70% 7.56% -3.37% -7.20% 1.23% 1.23% 1.23%
10.86% 21.02% 3.12% -11.41% 8.28% 8.28% 8.28%
6.25% 11.84% 0.94% 6.25% 6.25% 6.25% 6.25%
-3.00% 5.00% -4.00% -6.00% -6.00% -6.00% -2.13%
8.00% 13.00% 7.00% 3.00% 5.00% 4.00% 8.17%
3.00% 5.00% 1.00% 2.00% 1.00% 1.00% 2.83%
13.00% 17.00% 4.00% 3.00% 3.00% 3.00% 10.65%
5.00% 4.00% 4.00% 3.00% 3.00% 3.00% 4.28%
959,720 74.85%
1,049,806 75.61%
1,119,412 75.89%
1,082,789 75.00%
1,179,019 75.50%
1,212,385 75.50%
1,341,478 75.50%
1,398,930 75.50%
28.8% 71.2%
27.2% 72.8%
27.7% 72.3%
27.9% 72.1%
27.9% 72.1%
27.9% 72.1%
27.9% 72.1%
27.9% 72.1%
Total Gross Profit Total Gross Profit Margin Domestic Revenue % International Revenue %
Linear Technology Incorporated Income Statement Fiscal Years Ending 30-Jun
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
1,282,236 267,150 55,366 959,720
1,388,386 287,325 51,255 1,049,806
1,475,139 301,629 54,098 1,119,412
1,443,719
1,561,615
1,605,808
1,776,791
1,852,888
312,258 48,672
333,095 49,500
341,334 52,089
381,083 54,231
395,640 58,318
1,082,789
1,179,019
1,212,385
1,341,478
1,398,930
Research & development expenses Selling, general & administrative expenses Restructuring charges Total operating expenses
235,184 151,382 0 386,566
250,434 159,642 0 410,076
266,761 169,952 0 436,713
263,479 169,637 0 433,116
284,995 183,490 0 468,484
293,060 188,682 0 481,742
324,264 208,773 0 533,037
338,152 217,714 0 555,866
Operating income (loss)
573,154
639,730
682,699
649,673
710,535
730,643
808,440
843,064
Interest income Interest expense Acquisition related costs (Loss) gain on early retirement of convertible senior notes Total other income (expense), net
4,070 -48,343 0 0 -44,273
2,706 -41,168 0 0 -38,462
2,690 0 0 0 2,690
3,608
4,038
4,269
4,592
4,819
0 0 0 3,608
0 0 0 4,038
0 0 0 4,269
0 0 0 4,592
0 0 0 4,819
Income (loss) before income taxes Provision (benefit) for income taxes
528,881 121,956
601,268 141,307
685,389 164,426
653,282
714,573
734,912
813,032
847,883
177,336
193,974
199,495
220,701
230,162
Net income (loss)
406,925
459,961
520,963
475,945
520,599
535,416
592,331
617,721
Year end shares outstanding Weighted average shares outstanding-basic Net earnings (loss) per share-basic
233,025 236,703 1.72
239,096 240,498 1.91
242,751 244,408 2.13
240,975 241,863
238,901 239,938
236,992 237,946
234,799 235,895
232,781 233,790
1.97
2.17
2.25
2.51
2.64
1.02
1.06
1.14
1.22
1.30
1.38
1.46
1.54
Revenues Cost of sales Depreciation & Amortization Gross profit (loss)
Cash dividends per share
Linear Technology Incorporated Balance Sheet Fiscal Years Ending 30-Jun
2013
2014
2015
2016E
126,650 1,398,091
157,323 855,464
195,679 1,007,043
308,809
349,442
414,123
433,981
460,866
1,037,254
1,073,558
1,116,501
1,172,326
1,236,803
147,165 1,891 145,274
174,993 1,653 173,340
180,915 1,651 179,264
176,278 1,763
196,763 1,968
202,332 2,023
223,876 2,239
233,464 2,335
174,515
194,796
200,309
221,637
231,129
Total inventories
87,229
91,310
99,861
96,729
104,628
107,589
119,045
124,143
Prepaid expenses & other current assets
36,646
40,982
54,412
53,418
57,780
59,415
65,741
68,557
1,793,890
1,318,419
1,536,259
1,670,725
1,780,204
1,897,936
2,012,729
2,121,499
921,273 632,807 288,466
953,745 676,665 277,080
1,010,260 722,518 287,742
1,039,134 768,990
1,106,284 816,790
1,152,852 867,679
1,241,692 920,710
1,334,336 977,828
270,144
289,494
285,173
320,981
356,508
2,200 13,785 0
2,200 11,585 0
2,200 9,385 0
2,200 7,185
2,200 5,485
2,200 4,285
2,200 3,085
2,200 1,885
0
0
0
0
0
2,098,341
1,609,284
1,835,586
1,950,255
2,077,383
2,189,594
2,338,996
2,482,092
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable Accrued payroll & related benefits Deferred income on shipments to distributors Income taxes payable Other accrued liabilities Convertible senior notes - current portion
10,258 77,659 44,088 12,834 18,933 826,629
28,221 88,326 45,619 41,731 11,218 0
17,608 98,498 46,860 5,822 14,130 0
17,769 94,318 47,643 17,734 14,437 0
19,220 102,020 51,533 19,397 15,616 0
19,764 104,907 52,992 19,950 16,058 0
21,868 116,078 58,634 22,070 17,768 0
22,805 121,049 61,145 23,016 18,529 0
Total current liabilities
990,401
215,115
182,918
191,901
207,787
213,671
236,418
246,544
Total Deferred Taxes (Liabilities - Assets)
83,505
21,705
37,119
53,201
58,192
59,849
66,210
69,049
Convertible senior notes Other long-term liabilities
0 42,527
0 41,095
0 37,622
0 36,493
0 35,399
0 34,337
0 33,306
0 32,307
Total Liabilities
1,116,433
277,915
257,659
281,595
301,378
307,856
335,935
347,900
Stockholders' Equity: Common stock and Additional Paid in Capital Accumulated other comprehensive income (loss), net of tax Retained earnings (accumulated deficit)
1,736,729 -266 -754,555
1,948,006 355 -616,992
2,052,490 561 -475,124
2,063,434
2,063,449
2,063,449
2,063,449
2,063,449
561 -395,335
561 -288,005
561 -182,271
561 -60,949
561 70,182
981,908
1,331,369
1,577,927
1,668,660
1,776,005
1,881,739
2,003,061
2,134,192
2,098,341
1,609,284
1,835,586
1,950,255
2,077,383
2,189,594
2,338,996
2,482,092
ASSETS Cash & cash equivalents Marketable securitites Accounts receivable, gross Allowance for doubtful accounts Accounts receivable, net
Total current assets Gross property, plant & equipment Accumulated depreciation Net property, plant & equipment Goodwill Identified intangible assets, net Other non current assets Total assets
Total stockholders' equity (deficit)
Total Liabilites and Stockholders' Equity
2017E
2018E
2019E
2020E
Linear Technology Incorporated Cash Flow Statement Fiscal Years Ending 30-Jun
2011
2012
2013
2014
2015
580,782 50,137 69,221 21,675 5,110 0 7,237 -18,151 -6,344 11,819 -52,210 13,887 -12,228 0 670,935
398,111 55,934 61,225 19,868 -2,575 0 17,290 -5,965 12,001 4,581 -22,330 -6,254 33,333 0 565,219
406,925 55,366 63,865 21,029 -521 0 7,816 -7,565 -2,159 1,426 -4,206 2,755 19,203 0 563,934
459,961 51,255 65,128 18,458 -11,038 0 -28,066 -4,081 1,464 0 21,038 1,531 20,777 0 596,427
520,963 54,098 72,131 0 -15,190 0 -5,924 -8,551 -3,816 0 -1,496 1,241 -14,537 0 598,919
Cash flows from investing activities: Purchase of marketable securities Proceeds from sales & maturities of available-for-sale securities Acquisition of Dust Networks, net of cash assumed Purchase of property, plant & equipment Net cash flows from investing activities
-805,146 813,568 0 -120,415 -111,993
-1,046,120 707,791 -23,365 -35,731 -397,425
-1,181,592 772,968 0 -17,640 -426,264
-1,496,652 2,039,216 0 -37,669 504,895
-886,222 734,961 0 -62,560 -213,821
Cash flows from financing activities: Retirement of convertible senior notes Excess tax benefit from stock-based compensation Issuance of common stock under employee stock plans Purchase of common stock Payment of cash dividends Net cash flows from financing activities
-395,830 0 66,932 -38,173 -217,202 -584,273
0 0 79,650 -76,066 -228,483 -224,899
0 0 102,590 -85,699 -241,329 -224,438
-845,087 11,038 100,491 -81,786 -255,305 -1,070,649
0 15,190 40,712 -124,240 -278,404 -346,742
Increase (decrease) in cash & cash equivalents
-25,331
-57,105
-86,768
30,673
38,356
Cash & cash equivalents, beginning of year Cash & cash equivalents, end of year Cash paid for income taxes Cash paid for interest expense
295,854 270,523 189,575 32,334
270,523 213,418 91,315 25,831
213,418 126,650 99,720 25,485
126,650 157,323 119,797 21,127
157,323 195,679 186,920 0
Cash flows from operating activities: Net income (loss) Depreciation & amortization Stock-based compensation Amortization of convertible senior notes discount Excess tax benefit from stock-based compensation Loss (gain) on early retirement of convertible senior notes Accounts receivable Inventories Prepaid expenses, other current assets & deferred tax assets Long-term assets Accounts payable, accrued payroll & other accrued liabilities Deferred income on shipments to distributors Income taxes payable Long-term liabilities Net cash flows from operating activities
Linear Technology Incorporated Forecasted Cash Flow Statement Fiscal Years Ending 30-Jun Cash flows from operating activities:
2016E
2017E
2018E
2019E
2020E
Net income (loss) Add: Depreciation Add: Amortization Changes in: Accounts Receivable Net Inventories Prepaid expenses & other current assets Other non current assets Accounts payable Accrued payroll & related benefits Deferred income on shipments to distributors Income taxes payable Other accrued liabilities Total Deferred Taxes (Liabilities - Assets) Other liabilities
475,945 46,472 2,200
520,599 47,800 1,700
535,416 50,889 1,200
592,331 53,031 1,200
617,721 57,118 1,200
4,749 3,132 994 0 161 -4180 783 11912 307 16082 -1129
-20,281 -7,899 -4,362 0 1451 7702 3891 1664 1179 4991 -1095
-5,513 -2,961 -1,635 0 544 2887 1458 552 442 1656 -1062
-21,328 -11,456 -6,326 0 2104 11170 5642 2121 1710 6362 -1030
-9,492 -5,098 -2,816 0 937 4971 2511 946 761 2838 -999
Net cash flows from operating activities
557,428
557,340
583,875
635,530
670,598
Cash flows from investing activities: Marketable securities Property & equipment, gross Goodwill
-30,211 -28,874 0
-36,304 -67,149 0
-42,942 -46,568 0
-55,825 -88,840 0
-64,478 -92,644 0
Net cash flows from investing activities
-59,086
-103,453
-89,511
-144,665
-157,122
Cash flows from financing activities: Convertible senior notes Payment of cash dividend Treasury Stock Common Stock and Additional paid-in capital Accumulated other comprehensive income
0 -296,156 -100,000 10,944 0
0 -313,268 -100,000 15 0
0 -329,683 -100,000 0 0
0 -346,009 -125,000 0 0
0 -361,590 -125,000 0 0
Net cash flows from financing activities
-385,212
-413,253
-429,683
-471,009
-486,590
Cash flows from all activities: Net increase (decrease) in cash & cash equivalents
113,130
40,634
64,681
19,857
26,885
Cash & cash equivalents, beginning of year Cash & cash equivalents, end of year
195,679 308,809
308,809 349,442
349,442 414,123
414,123 433,981
433,981 460,866
Linear Technology Incorporated Common Size Income Statement Fiscal Years Ending 30-Jun
2013 100.00% 20.83% 4.32% 74.85%
2014 100.00% 20.69% 3.69% 75.61%
2015 100.00% 20.45% 3.67% 75.89%
2016E 100.00% 21.63% 3.37% 75.00%
2017E 100.00% 21.33% 3.17% 75.50%
2018E 100.00% 21.26% 3.24% 75.50%
2019E 100.00% 21.45% 3.05% 75.50%
2020E 100.00% 21.35% 3.15% 75.50%
Research & development expenses Selling, general & administrative expenses Restructuring charges Total operating expenses
18.34% 11.81% 0.00% 30.15%
18.04% 11.50% 0.00% 29.54%
18.08% 11.52% 0.00% 29.60%
18.25% 11.75% 0.00% 30.00%
18.25% 11.75% 0.00% 30.00%
18.25% 11.75% 0.00% 30.00%
18.25% 11.75% 0.00% 30.00%
18.25% 11.75% 0.00% 30.00%
Operating income (loss)
44.70%
46.08%
46.28%
45.00%
45.50%
45.50%
45.50%
45.50%
Interest income Interest expense Acquisition related costs (Loss) gain on early retirement of convertible senior notes Total other income (expense), net
0.32% -3.77% 0.00% 0.00% -3.45%
0.19% -2.97% 0.00% 0.00% -2.77%
0.18% 0.00% 0.00% 0.00% 0.18%
0.25% 0.00% 0.00% 0.00% 0.25%
0.26% 0.00% 0.00% 0.00% 0.26%
0.27% 0.00% 0.00% 0.00% 0.27%
0.26% 0.00% 0.00% 0.00% 0.26%
0.26% 0.00% 0.00% 0.00% 0.26%
9.51%
10.18%
11.15%
12.28%
12.42%
12.42%
12.42%
12.42%
31.74%
33.13%
35.32%
32.97%
33.34%
33.34%
33.34%
33.34%
Revenues Cost of sales Depreciation & Amortization Gross profit (loss)
Provision (benefit) for income taxes Net income (loss)
Linear Technology Incorporated Common Size Balance Sheet Fiscal Years Ending 30-Jun
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
9.88% 109.04%
11.33% 61.62%
13.27% 68.27%
21.39% 71.85%
22.38% 68.75%
25.79% 69.53%
24.42% 65.98%
24.87% 66.75%
11.48% 0.15% 11.33%
12.60% 0.12% 12.49%
12.26% 0.11% 12.15%
12.21% 0.12% 12.09%
12.60% 0.13% 12.47%
12.60% 0.13% 12.47%
12.60% 0.13% 12.47%
12.60% 0.13% 12.47%
Total inventories
6.80%
6.58%
6.77%
6.70%
6.70%
6.70%
6.70%
6.70%
Prepaid expenses & other current assets
2.86%
2.95%
3.69%
3.70%
3.70%
3.70%
3.70%
3.70%
139.90%
94.96%
104.14%
115.72%
114.00%
118.19%
113.28%
114.50%
Gross property, plant & equipment Accumulated depreciation & amortization Net property, plant & equipment
71.85% 49.35% 22.50%
68.69% 48.74% 19.96%
68.49% 48.98% 19.51%
71.98% 53.26% 18.71%
70.84% 52.30% 18.54%
71.79% 54.03% 17.76%
69.88% 51.82% 18.07%
72.01% 52.77% 19.24%
Goodwill Identified intangible assets, net & goodwill Other non current assets
0.17% 1.08% 0.00%
0.16% 0.83% 0.00%
0.15% 0.64% 0.00%
0.15% 0.50% 0.00%
0.14% 0.35% 0.00%
0.14% 0.27% 0.00%
0.12% 0.17% 0.00%
0.12% 0.10% 0.00%
163.65%
115.91%
124.43%
135.09%
133.03%
136.35%
131.64%
133.96%
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable Accrued payroll & related benefits Deferred income on shipments to distributors Income taxes payable Other accrued liabilities Convertible senior notes - current portion
0.80% 6.06% 3.44% 1.00% 1.48% 64.47%
2.03% 6.36% 3.29% 3.01% 0.81% 0.00%
1.19% 6.68% 3.18% 0.39% 0.96% 0.00%
1.23% 6.53% 3.30% 1.23% 1.00% 0.00%
1.23% 6.53% 3.30% 1.24% 1.00% 0.00%
1.23% 6.53% 3.30% 1.24% 1.00% 0.00%
1.23% 6.53% 3.30% 1.24% 1.00% 0.00%
1.23% 6.53% 3.30% 1.24% 1.00% 0.00%
Total current liabilities
77.24%
15.49%
12.40%
13.29%
13.31%
13.31%
13.31%
13.31%
Total Deferred Taxes (Liabilities - Assets)
6.51%
1.56%
2.52%
3.68%
3.73%
3.73%
3.73%
3.73%
Convertible senior notes Other long-term liabilities
0.00% 3.32%
0.00% 2.96%
0.00% 2.55%
0.00% 2.53%
0.00% 2.27%
0.00% 2.14%
0.00% 1.87%
0.00% 1.74%
87.07%
20.02%
17.47%
19.50%
19.30%
19.17%
18.91%
18.78%
Stockholders' Equity: Common stock and Additional Paid in Capital 135.45% Accumulated other comprehensive income (loss), net of tax -0.02% Retained earnings (accumulated deficit) -58.85%
140.31% 0.03% -44.44%
139.14% 0.04% -32.21%
142.92% 0.04% -27.38%
132.14% 0.04% -18.44%
128.50% 0.03% -11.35%
116.13% 0.03% -3.43%
111.36% 0.03% 3.79%
76.58%
95.89%
106.97%
115.58%
113.73%
117.18%
112.73%
115.18%
163.65%
115.91%
124.43%
135.09%
133.03%
136.35%
131.64%
133.96%
ASSETS Cash & cash equivalents Marketable securitites Accounts receivable, gross Allowance for doubtful accounts Accounts receivable, net
Total current assets
Total assets
Total Liabilities
Total stockholders' equity (deficit)
Total Liabilites and Stockholders' Equity
Linear Technology Incorporated Value Driver Estimation Fiscal Years Ending 30-Jun Marginal Tax Rate Federal statutory tax rate State income taxes, net of federal benefit Foreign rate differential Marginal Tax Rate
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
35.00% 0.27% -7.66% 27.61%
35.00% -0.50% -8.17% 26.33%
35.00% 0.17% -8.02% 27.15%
35.00% 0.17% -8.02% 27.15%
35.00% 0.17% -8.02% 27.15%
35.00% 0.17% -8.02% 27.15%
35.00% 0.17% -8.02% 27.15%
35.00% 0.17% -8.02% 27.15%
1,282,236 -267,150 -55,366 -235,184 -151,382 0 242 573,396
1,388,386 -287,325 -51,255 -250,434 -159,642 0 241 639,971
1,475,139 -301,629 -54,098 -266,761 -169,952 0 261 682,960
1,443,719 -312,258 -48,672 -263,479 -169,637 0 294 649,967
1,561,615 -333,095 -49,500 -284,995 -183,490 0 276 710,810
1,605,808 -341,334 -52,089 -293,060 -188,682 0 295 730,938
1,776,791 -381,083 -54,231 -324,264 -208,773 0 291 808,731
1,852,888 -395,640 -58,318 -338,152 -217,714 0 328 843,392
121,956
141,307
164,426
177,336
193,974
199,495
220,701
230,162
-1,124 13,346 0 0 67 134,245
-712 10,839 0 0 63 151,497
-730 0 0 0 71 163,767
-979 0 0 0 80 176,437
-1,096 0 0 0 75 192,953
-1,159 0 0 0 80 198,417
-1,246 0 0 0 79 219,534
-1,308 0 0 0 89 228,943
Deferred income tax provision (benefit)
22,533
-61,800
15,414
16,082
4,991
1,656
6,362
2,838
Net Change in DT Liabilities
22,533
-61,800
15,414
16,082
4,991
1,656
6,362
2,838
461,684
426,674
534,607
489,612
522,849
534,178
595,559
617,287
2% 1,282,236 25,645 126,650
2% 1,388,386 27,768 157,323
2% 1,475,139 29,503 195,679
2% 1,443,719 28,874 308,809
2% 1,561,615 31,232 349,442
2% 1,605,808 32,116 414,123
2% 1,776,791 35,536 433,981
2% 1,852,888 37,058 460,866
25,645 145,274 87,229 36,646 294,794
27,768 173,340 91,310 40,982 333,400
29,503 179,264 99,861 54,412 363,040
28,874 174,515 96,729 53,418 353,536
31,232 194,796 104,628 57,780 388,436
32,116 200,309 107,589 59,415 399,429
35,536 221,637 119,045 65,741 441,959
37,058 231,129 124,143 68,557 460,887
10,258 77,659 44,088 12,834 18,933 163,772
28,221 88,326 45,619 41,731 11,218 215,115
17,608 98,498 46,860 5,822 14,130 182,918
17,769 94,318 47,643 17,734 14,437 191,901
19,220 102,020 51,533 19,397 15,616 207,787
19,764 104,907 52,992 19,950 16,058 213,671
21,868 116,078 58,634 22,070 17,768 236,418
22,805 121,049 61,145 23,016 18,529 246,544
288,466
277,080
287,742
270,144
289,494
285,173
320,981
356,508
7,147
7,739
8,713
8,180
8,766
8,635
9,719
10,795
Identified intangible assets, net Other non current assets
13,785 0
11,585 0
9,385 0
7,185 0
5,485 0
4,285 0
3,085 0
1,885 0
Total Other Long-Term Operating Assets
13,785
11,585
9,385
7,185
5,485
4,285
3,085
1,885
42,527 42,527
41,095 41,095
37,622 37,622
36,493 36,493
35,399 35,399
34,337 34,337
33,306 33,306
32,307 32,307
397,893
373,594
448,340
410,652
448,995
449,515
506,020
551,224
NOPLAT / Beginning IC ROIC:
461,684 430,346 107.28%
426,674 397,893 107.23%
534,607 373,594 143.10%
489,612 448,340 109.21%
522,849 410,652 127.32%
534,178 448,995 118.97%
595,559 449,515 132.49%
617,287 506,020 121.99%
Beginning IC x (ROIC - WACC) EP
430,346 98.54% 424,065
397,893 98.49% 391,892
373,594 134.36% 501,949
448,340 100.46% 450,420
410,652 118.58% 486,951
448,995 110.23% 494,928
449,515 123.75% 556,264
506,020 113.25% 573,053
NOPLAT - CapEx FCF
461,684 -32,453 494,137
426,674 -24,299 450,973
534,607 74,746 459,861
489,612 -37,688 527,300
522,849 38,343 484,506
534,178 520 533,658
595,559 56,505 539,054
617,287 45,204 572,083
EBITA: Net sales - Cost of sales - Depreciation & Amortization - Research & development expense - Selling, general & administrative expense - Restructuring Charge
+ Implied Interest on Operating Leases EBITA Less: Adjusted Taxes: Income tax provision (benefit) - Tax Shield on Interest income + Tax Benefit on Interest expense + Tax Shield Acqusisition related Costs + Tax Shield Early Retirement of Convertible Notes
+ Tax Shield on Implied Lease Interest Adjusted Taxes Plus: Change in Deferred Tax:
NOPLAT NOPLAT: EBITA - Adjusted Taxes + Change in DT
Operating Current Assets: "Normal" Cash % x Revenue "Normal" Cash (Revenue x Avg %) Cash and cash equivalents Lower of "Normal" Cash or Actual Cash Accounts receivable, net Inventories Prepaid expenses & other current assets
Operating Current Assets Operating Current Liabilities: Accounts payable Accrued payroll & related benefits Deferred income on shipments to distributors Income taxes payable Other accrued liabilities
Operating Current Liabilities Net PPE: Property & equipment, net
PV of Operating Leases: PV of Operating Leases Other Operating Assets:
Other Operating Liabilities: Other liabilities
Total Other Long-Term Operating Liabilities Invested Capital: Invested Capital
Value Drivers:
Linear Technology Incorporated Weighted Average Cost of Capital (WACC) Estimation WACC = Re * (E/V) + Rd * (1 - t) * (D/V) + Rpfd * (PFD/V) Cost of Equity Re = Rf + B * (E[Rm] - Rf) Rf E[Rm] - Rf Beta Re
2.820% 4.85% 1.222 8.75%
Cost of debt Rd
3.37%
Cost of Preferred Stock Rpfd
0.00%
Market Value of Equity Shares outstanding x Shares Price E
242751 $44.31 $10,756,297
Market Value of Debt Long-term debt + Operating Leases
D Market Value of Preferred Shares outstanding PFD
Market Value of Firm V = E + D + PFD
weight of equity weight of debt weight of preferred Marginal Tax Rate WACC
0 $8,713 $8,713
0 0
$10,765,010
99.92% 0.08% 0.00% 27.15% 8.74%
---------->
Texas Instruments Bond, maturity 5/1/23 - (10-yr Bond (Yahoo Finance)) + (30-year Treasury Yield (Yahoo Finance)) = Cost of Debt
2.68% 2.13% 2.82% 3.37%
Linear Technology Incorporated Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models Key Inputs: CV Growth CV ROIC WACC Cost of Equity Fiscal Years Ending 30-Jun DCF Model Period FCF Continuing Value PV V(operating) Non-operating Assets: Excess Cash Marketable Securities
V(non-operating)
3.50% 122.00% 8.74% 8.75% 2016E
2017E
2018E
2019E
2020E
1 527,306
2 484,514
3 533,665
4 539,064
484,916 9,876,000
409,746
415,031
385,528
5 572,095 11,438,764 8,180,779
1 450,430
2 486,960
3 494,938
4 556,274
414,220 9,427,688 448,311 9,876,000
411,814
384,913
397,836
166,176 1,007,043 1,173,219
Non-operating Liabilities: Convertible senior notes Employee Stock Options
PV of Operating Leases V(other) V(e) Shares Outstanding Intrinsic Value of Stock (FY End '14)
EP Model Period Economic Profit Continuing Value PV NPV Beginning Invested Capital (end 2014) V(operating) Non-operating Assets: Excess Cash Marketable Securities
V(non-operating)
0 10,241 8,685 18,926 11,030,293 242,751 45.44
166,176 1,007,043 1,173,219
Non-operating Liabilities: Convertible senior notes Employee Stock Options
PV of Operating Leases V(other) V(e) Shares Outstanding Intrinsic Value of Stock (FY End '14)
Intrinsic Value of Stock (Today)
0 10,241 8,685 18,926 11,030,293 242,751 45.44
$46.92
5 573,063 10,932,776 7,818,906
Linear Technology Incorporated Dividend Discount Model (DDM) or Fundamental P/E Valuation Model Fiscal Years Ending 30-Jun EPS Key Assumptions CV growth CV ROE Cost of Equity Future Cash Flows P/E Multiple (CV Year) EPS (CV Year) Future Stock Price Dividends Per Share Future Cash Flows Period Discounted Cash Flows Intrinsic Value (FY End '14)
Intrinsic Value of Stock (Today)
2016E
2017E
2018E
2019E
2020E
$ 1.97 $ 2.17 $ 2.25 $ 2.51 $ 2.64
5.00% 29.86% 8.75%
1.22
1.30
1.38
1 1.12
2 1.10
3 1.07
$ 46.32
$47.83
22.22 $ 2.64 $ 58.71 1.46 1.54 58.71 4 1.04
4 41.98
Linear Technology Incorporated Relative Valuation Models Peer Comparison Ticker MXIM ON FCS IXYS IFX-DE MELE-BE ADI ISIL TXN
Company Maxim Integrated Products ON Semiconductor Corp Fairchild Semiconductor IXYS Corporation Infineon Technologies AG Melexis NV Analog Devices, Inc Intersil Corporation Texas Instruments Inc
Price $40.56 $11.60 $18.26 $13.00 €11.28 €47.69 $61.70 $14.19 $57.63
EPS 2015E $1.72 $0.83 $0.57 $0.71 €0.57 €2.45 $3.03 $0.61 $2.72
LLTC
Linear Technology Corp
$44.31
$1.97
Implied Value: Relative P/E (EPS15) Relative P/E (EPS16)
$ 41.03 $ 38.40
EPS 2016E $2.10 $0.93 $0.88 $1.22 €0.70 €2.59 $3.40 $0.65 $2.97 Average
P/E 15 23.6 14.0 32.0 18.3 19.8 19.5 20.4 23.3 21.2 20.9
P/E 16 19.3 12.5 20.8 10.7 16.1 18.4 18.1 21.8 19.4 17.7
$2.17 22.5 20.4
Linear Technology Incorporated Key Management Ratios Fiscal Years Ending 31-Dec Liquidity Ratios Current Assets / Current Liabilities = Current Ratio
2013
2014
2015
2016E
2017E
2018E
2019E
2020
1,793,890 990,401 1.811
1,318,419 215,115 6.129
1,536,259 182,918 8.399
1,670,725 191,901 8.706
1,780,204 207,787 8.567
1,897,936 213,671 8.883
2,012,729 236,418 8.513
2,121,499 246,544 8.605
(Current Assets - Inventory ) / Current Liabilities = Quick Ratio
1,793,890 87,229 990,401 1.723
1,318,419 91,310 215,115 5.704
1,536,259 99,861 182,918 7.853
1,670,725 96,729 191,901 8.202
1,780,204 104,628 207,787 8.064
1,897,936 107,589 213,671 8.379
2,012,729 119,045 236,418 8.010
2,121,499 124,143 246,544 8.101
(Cash + Marketable Securities) / Current Liabilities = Cash Ratio
126,650 1,398,091 990,401 1.540
157,323 855,464 215,115 4.708
195,679 1,007,043 182,918 6.575
308,809 1,037,254 191,901 7.014
349,442 1,073,558 207,787 6.848
414,123 1,116,501 213,671 7.163
433,981 1,172,326 236,418 6.794
460,866 1,236,803 246,544 6.886
Activity or Asset-Management Ratios Annual Sales / Average Accounts Receivable Receivables Turnover
1,282,236 149,182 8.60
1,388,386 159,307 8.72
1,475,139 176,302 8.37
1,443,719 176,890 8.16
1,561,615 184,656 8.46
1,605,808 197,552 8.13
1,776,791 210,973 8.42
1,852,888 226,383 8.18
369 8.60 42.93
370 8.72 42.45
371 8.37 44.34
371 8.16 45.46
371 8.46 43.87
371 8.13 45.64
371 8.42 44.05
371 8.18 45.33
Cost of Goods Sold / Average Inventory Inventory Turnover
267,150 83,447 3.201
287,325 89,270 3.219
301,629 95,586 3.156
312,258 98,295 3.177
333,095 100,679 3.309
341,334 106,109 3.217
381,083 113,317 3.363
395,640 121,594 3.254
365 / Inventory Turnover Inventory Period
369 3.201 115.260
370 3.219 114.956
371 3.156 117.569
371 3.177 116.786
371 3.309 112.135
371 3.217 115.331
371 3.363 110.319
371 3.254 114.022
7,123 2,098,341 0.34%
7,714 1,609,284 0.48%
8,685 1,835,586 0.47%
8,153 1,950,255 0.42%
8,737 2,077,383 0.42%
8,607 2,189,594 0.39%
9,688 2,338,996 0.41%
10,760 2,482,092 0.43%
7,123 981,908 0.73%
7,714 1,331,369 0.58%
8,685 1,577,927 0.55%
8,153 1,668,660 0.49%
8,737 1,776,005 0.49%
8,607 1,881,739 0.46%
9,688 2,003,061 0.48%
10,760 2,134,192 0.50%
959,720 1,282,236 74.85%
1,049,806 1,388,386 75.61%
1,119,412 1,475,139 75.89%
1,082,789 1,443,719 75.00%
1,179,019 1,561,615 75.50%
1,212,385 1,605,808 75.50%
1,341,478 1,776,791 75.50%
1,398,930 1,852,888 75.50%
406925 1282236 31.74%
459961 1388386 33.13%
520963 1475139 35.32%
475945 1443719 32.97%
520599 1561615 33.34%
535416 1605808 33.34%
592331 1776791 33.34%
617721 1852888 33.34%
406,925 1,956,282 20.80%
459,961 1,853,813 24.81%
520,963 1,722,435 30.25%
475,945 1,892,920 25.14%
520,599 2,013,819 25.85%
535,416 2,133,489 25.10%
592,331 2,264,295 26.16%
617,721 2,410,544 25.63%
406,925 859,208 47.36%
459,961 1,156,639 39.77%
520,963 1,454,648 35.81%
475,945 1,623,293 29.32%
520,599 1,722,332 30.23%
535,416 1,828,872 29.28%
592,331 1,942,400 30.49%
617,721 2,068,626 29.86%
$1.02 1.72 59.3%
$1.06 1.91 55.4%
$1.14 2.13 53.5%
$1.22 1.97 62.0%
$1.30 2.17 59.9%
$1.38 2.25 61.3%
$1.46 2.51 58.1%
$1.54 2.64 58.3%
241,329 85,699 406,925 80.37%
255,305 81,786 459,961 73.29%
278,404 124,240 520,963 77.29%
296,156 100,000 475,945 83.24%
313,268 100,000 520,599 79.38%
329,683 100,000 535,416 80.25%
346,009 125,000 592,331 79.52%
361,590 125,000 617,721 78.77%
365 / Receivables Turnover Average Collection Period
Financial Leverage Ratios Total Debt (includes operating leases) / Total Assets Debt Ratio Total Debt / Total Equity Debt-to-Equity Ratio Profitability Ratios (Sales - (COGS & Depreciation) ) / Sales Gross Profit Margin Net Income / Sales Net Profit Margin Net Income / Average Total Assets Return on Assets Net Income / Average Shareholder Equity Return on Equity Payout Policy Ratios Dividends per Share / Earnings per Share Payout Ratio ( Total Dividend + Stock Repurchases ) / Net Income Total Payout Ratio
Present Value of Operating Lease Obligations (2015)
Present Value of Operating Lease Obligations (2014) Operating Leases 3154 2062 1312 972 1078 951 9529 844 8685
Fiscal Years Ending 30-Jun 2016 2017 2018 2019 2020 Thereafter Total Minimum Payments Less: Interest PV of Minimum Payments
Capitalization of Operating Leases
Capitalization of Operating Leases
Pre-Tax Cost of Debt Number Years Implied by Year 6 Payment
Year 1 2 3 4 5 6 & beyond PV of Minimum Payments
Lease Commitment 3154 2062 1312 972 1078 951
3.50% 1.0 PV Lease Payment 3047.4 1925.0 1183.5 847.1 907.8 773.8 8684.6
Present Value of Operating Lease Obligations (2013)
Pre-Tax Cost of Debt Number Years Implied by Year 6 Payment
Year 1 2 3 4 5 6 & beyond PV of Minimum Payments
Lease Commitment 2762 2235 1154 764 535 535
3.50% 1.9 PV Lease Payment 2668.7 2086.5 1040.9 665.9 450.5 801.7 7714.2
Present Value of Operating Lease Obligations (2012) Operating Leases 2634 1816 1026 690 480 1200 7846 723 7123
Fiscal Years Ending 30-Jun 2014 2015 2016 2017 2018 Thereafter Total Minimum Payments Less: Interest PV of Minimum Payments
Capitalization of Operating Leases
Operating Leases 2785 1918 1010 567 484 1100 7864 694 7170
Fiscal Years Ending 30-Jun 2013 2014 2015 2016 2017 Thereafter Total Minimum Payments Less: Interest PV of Minimum Payments
Capitalization of Operating Leases
Pre-Tax Cost of Debt Number Years Implied by Year 6 Payment
Year 1 2 3 4 5 6 & beyond PV of Minimum Payments
Operating Leases 2762 2235 1154 764 535 1000 8450 736 7714
Fiscal Years Ending 30-Jun 2015 2016 2017 2018 2019 Thereafter Total Minimum Payments Less: Interest PV of Minimum Payments
Lease Commitment 2634 1816 1026 690 480 480
3.50% 2.5 PV Lease Payment 2545.0 1695.4 925.5 601.4 404.2 951.8 7123.2
Pre-Tax Cost of Debt Number Years Implied by Year 6 Payment
Year 1 2 3 4 5 6 & beyond PV of Minimum Payments
Lease Commitment 2785 1918 1010 567 484 484
3.50% 2.3 PV Lease Payment 2690.9 1790.6 911.0 494.2 407.6 875.8 7170.1
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding Number of Options Outstanding (shares): Average Time to Maturity (years): Expected Annual Number of Options Exercised: Current Average Strike Price: Cost of Equity: Current Stock Price:
481.762 0.55 874.281
Increase in Shares Outstanding: Average Strike Price: Increase in Common Stock Account:
$ 22.75 8.75% $44.31 1 2 3 4 5 2016E 2017E 2018E 2019E 2020E 481.262 0.500 0.0 0 0 $ 22.74 $ 29.71 $ $ $ 10,944 15 -
Change in Treasury Stock Expected Price of Repurchased Shares: Number of Shares Repurchased:
-100,000 -100,000 -100,000 -125,000 -125,000 $ 44.31 $ 48.19 $ 52.40 $ 56.98 $ 61.97 (2,257) (2,075) (1,908) (2,194) (2,017)
Shares Outstanding (beginning of the year) Plus: Shares Issued Through ESOP Less: Shares Repurchased in Treasury Shares Outstanding (end of the year)
242,751 481.26 2,256.83 240,975
240,975 238,901 236,992 234,799 0.50 0 0 0 2,075.31 1,908 2,194 2,017 238,901 236,992 234,799 232,781
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol Current Stock Price Risk Free Rate Current Dividend Yield Annualized St. Dev. of Stock Returns
Range of Outstanding Options Range 1 Range 2 Total
Number of Shares 481.262 0.500
LLTC $44.31 2.82% 2.75% 33.94%
Average Exercise Price 22.74 29.71
482 $ 22.75
Average B-S Value Remaining Option of Options Life (yrs) Price Granted 0.55 $ 21.26 $ 10,233 1.55 $ 15.35 $ 8 0.55 $ 21.92 $ 10,241
Sensitivity Analysis DCF Price $46.92 5.00% 7.00% 9.00% 11.00% Automotive Segment 13.00% Revenue Growth 2017 15.00% 17.00% 19.00% 21.00%
0.00% $44.98 $45.15 $45.32 $45.48 $45.65 $45.82 $45.98 $46.15 $46.32
2.00% $45.30 $45.47 $45.63 $45.80 $45.97 $46.14 $46.30 $46.47 $46.64
4.00% $45.62 $45.79 $45.95 $46.12 $46.29 $46.45 $46.62 $46.79 $46.95
6.00% $45.94 $46.10 $46.27 $46.44 $46.60 $46.77 $46.94 $47.11 $47.27
Industrial Segment Revenue Growth 2017 8.00% 10.00% 12.00% $46.26 $46.57 $46.89 $46.42 $46.74 $47.06 $46.59 $46.91 $47.23 $46.76 $47.07 $47.39 $46.92 $47.24 $47.56 $47.09 $47.41 $47.73 $47.26 $47.58 $47.89 $47.42 $47.74 $48.06 $47.59 $47.91 $48.23
14.00% $47.21 $47.38 $47.54 $47.71 $47.88 $48.04 $48.21 $48.38 $48.55
16.00% $47.53 $47.70 $47.86 $48.03 $48.20 $48.36 $48.53 $48.70 $48.86
DCF Price $46.92 6.50% 7.00% 7.50% 8.00% WACC 8.74% 9.00% 9.50% 10.00% 10.50%
1.50% $52.40 $48.09 $44.50 $41.46 $37.74 $36.61 $34.65 $32.91 $31.37
2.00% $56.66 $51.50 $47.28 $43.77 $39.52 $38.26 $36.05 $34.13 $32.43
2.50% $61.98 $55.67 $50.62 $46.49 $41.59 $40.15 $37.66 $35.51 $33.62
3.00% $68.83 $60.88 $54.71 $49.77 $44.03 $42.36 $39.52 $37.08 $34.97
CV growth of NOPLAT 3.50% 4.00% $77.96 $90.74 $67.59 $76.52 $59.81 $66.37 $53.76 $58.76 $46.92 $50.43 $44.98 $48.11 $41.68 $44.24 $38.90 $41.02 $36.51 $38.29
4.50% $109.91 $89.03 $75.12 $65.18 $54.76 $51.94 $47.31 $43.52 $40.37
5.00% $141.86 $107.80 $87.37 $73.75 $60.25 $56.73 $51.06 $46.53 $42.82
5.50% $205.77 $139.08 $105.74 $85.74 $67.44 $62.89 $55.76 $50.21 $45.77
DCF Price $46.92 0.00% 2.00% 4.00% 6.00% Industrial Segment 8.00% Revenue Growth 2017 10.00% 12.00% 14.00% 16.00%
71.00% $41.95 $42.23 $42.52 $42.81 $43.10 $43.39 $43.68 $43.97 $44.25
72.00% $42.87 $43.17 $43.46 $43.76 $44.06 $44.35 $44.65 $44.94 $45.24
73.00% $43.80 $44.10 $44.40 $44.71 $45.01 $45.31 $45.62 $45.92 $46.23
74.00% $44.72 $45.03 $45.35 $45.66 $45.97 $46.28 $46.59 $46.90 $47.21
Gross Profit Margin 75.00% $45.65 $45.97 $46.29 $46.60 $46.92 $47.24 $47.56 $47.88 $48.20
76.00% $46.58 $46.90 $47.23 $47.55 $47.88 $48.20 $48.53 $48.86 $49.18
77.00% $47.50 $47.84 $48.17 $48.50 $48.83 $49.17 $49.50 $49.83 $50.17
78.00% $48.43 $48.77 $49.11 $49.45 $49.79 $50.13 $50.47 $50.81 $51.15
79.00% $49.35 $49.70 $50.05 $50.40 $50.75 $51.09 $51.44 $51.79 $52.14
DCF Price $46.92 2.50% 3.00% 3.50% 4.00% CapEx % Increase 4.30% 5.00% 5.50% 6.00% 6.50%
71.00% $43.40 $43.32 $43.23 $43.15 $43.10 $42.98 $42.90 $42.82 $42.73
72.00% $44.35 $44.27 $44.19 $44.11 $44.06 $43.94 $43.86 $43.77 $43.69
73.00% $45.31 $45.23 $45.14 $45.06 $45.01 $44.90 $44.81 $44.73 $44.65
74.00% $46.27 $46.18 $46.10 $46.02 $45.97 $45.85 $45.77 $45.69 $45.60
Gross Profit Margin 75.00% $47.22 $47.14 $47.06 $46.97 $46.92 $46.81 $46.72 $46.64 $46.56
76.00% $48.18 $48.09 $48.01 $47.93 $47.88 $47.76 $47.68 $47.60 $47.51
77.00% $49.13 $49.05 $48.97 $48.88 $48.83 $48.72 $48.64 $48.55 $48.47
78.00% $50.09 $50.01 $49.92 $49.84 $49.79 $49.67 $49.59 $49.51 $49.43
79.00% $51.04 $50.96 $50.88 $50.80 $50.75 $50.63 $50.55 $50.46 $50.38
9. S&P Capital IQ – Technology Hardware, Storage & Peripherals, April 2015 http://www.netadvantage.standardandpoors.com.pr oxy.lib.uiowa.edu/NASApp/NetAdvantage/simpleSea rchRun.do?ControlName=IndustriesSurveySearch 10. BusinessInsider, 07/10/2015, “PC Sales are Imploding” http://www.businessinsider.com/pc-sales-plummetin-q2-2015-gartner-idc-say-2015-7?r=UK&IR=T 11. Statista, “Global PC Shipments (desktop and portable) from 2009 to 2019” http://www.statista.com.proxy.lib.uiowa.edu/statisti cs/269049/global-pc-shipment-forecast-since-2009/ 12. IC Insights, “TI Strengthens Analog Marketshare; Skyworks Gains from Apple’s Favor,” May 11, 2015 http://www.icinsights.com/news/bulletins/TIStrengthens-Analog-Marketshare-Skyworks-GainsFrom-Apples-Favor/ 13. Fisher Investments on Technology, pgs 46-47 14. Semi.org, Historical Book-to-Bill Press Release Data http://www.semi.org/en/MarketInfo/Book-to-Bill 15. KPMG Global Automotive Executive Survey 2015, pg 12 https://www.kpmg.com/Global/en/IssuesAndInsights /ArticlesPublications/global-automotive-executivesurvey/Documents/2015-report-v1.pdf 16. Federal Reserve Bank of St. Louis, 07/ 2015, “Personal Consumption Expenditures” https://research.stlouisfed.org/fred2/series/PCE#
IMPORTANT DISCLAIMER Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa’s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.
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