Analog Devices, Inc.ADINASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $253.17 per share(market-calibrated)

-25.9%

Upside to Fair Value

Current

$341.52

Pure Model

$242.92

Fair Value

$253.17

Bull Case

$322.94

Bear Case

$177.79

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

6.43%

Calibrated Growth

4.42%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $242.92.

What's Driving This Ratingfor ADI

↓

CapEx normalizing toward maintenance

Historical CapEx is 6.48% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$105M in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 25.88% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 26.00% in Year 1 to 3.75% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $190.41/share (20.5x terminal FCF) while exit multiple gives $295.43/share (37.2x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $341.52, the market implies 6.43% perpetual growth — 268bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.17% indicates efficient cash generation. FCF reaches $7.2B by Year 10 (32.78% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.03

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.14%

Cost of Debt

Pre-tax Cost of Debt2.98%

Tax Rate16.40%

After-tax Cost of Debt2.49%

Equity Weight (E/V)95.12%

Debt Weight (D/V)4.88%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (95.12% × 9.14%) + (4.88% × 2.49%)

= 8.81%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$13.9B	$16.6B	$18.3B	$19.7B	$22.0B
EBIT	$3.6B	$4.3B	$4.7B	$5.1B	$5.7B
Tax	$589M	$704M	$776M	$836M	$933M
NOPAT	$3.0B	$3.6B	$4.0B	$4.3B	$4.8B
+ Depreciation	$2.5B	$2.9B	$3.2B	$3.5B	$3.9B
- Capex	$899M	$1.1B	$1.1B	$1.2B	$1.3B
- Δ NWC	$462M	$218M	$107M	$115M	$128M
Free Cash Flow	$4.1B	$5.3B	$5.9B	$6.4B	$7.2B
Discount Factor	0.919	0.776	0.655	0.554	0.430
Present Value	$3.8B	$4.1B	$3.9B	$3.6B	$3.1B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.2B

Terminal Growth Rate3.75%

WACC8.81%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$147.7B

PV of Terminal Value$63.4B

Exit Multiple Method

Year 10 EBITDA$9.6B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$268.5B

PV of Terminal Value$115.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$36.9B

PV of Terminal Value$63.4B

Enterprise Value$100.3B

(-) Net Debt$6.2B

Equity Value$94.1B

Shares Outstanding494M

Price per Share$190.41

Exit Multiple Method

PV of Projected FCFs$36.9B

PV of Terminal Value$115.4B

Enterprise Value$152.2B

(-) Net Debt$6.2B

Equity Value$146.1B

Shares Outstanding494M

Price per Share$295.43

Pure Model Fair Value

$242.92

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
6.81%	$305.63	$319.53	$337.96	$363.58	$401.61
7.81%	$263.48	$271.49	$281.47	$294.25	$311.20
8.81%	$231.82	$236.87	$242.92	$250.29	$259.48
9.81%	$206.64	$210.03	$213.97	$218.62	$224.19
10.81%	$185.85	$188.22	$190.93	$194.05	$197.68

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$177.79

-47.9% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.29

Base Case

$242.92

-28.9% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.03

Bull Case

$322.94

-5.4% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.88

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth26.00%

Year 3 Revenue Growth8.89%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin25.88%

Terminal EBIT Margin26.61%

Tax Rate16.40%

Historical Capex / Rev6.48%

Terminal Capex / Rev6.00%

NWC / Revenue16.13%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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