Teradyne, Inc.TERNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $165.78 per share(market-calibrated)

-44.9%

Upside to Fair Value

Current

$301.00

Pure Model

$120.70

Fair Value

$165.78

Bull Case

$166.50

Bear Case

$82.90

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor TER

✓

CapEx already efficient

CapEx at 5.50% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 24.04% 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 31.18% 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 $74.37/share (11.8x terminal FCF) while exit multiple gives $167.03/share (41.9x 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 price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $301.00. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 66.77% indicates efficient cash generation. FCF reaches $1.6B by Year 10 (18.99% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.80

Market Risk Premium4.50%

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

Cost of Equity (Re)12.60%

Cost of Debt

Pre-tax Cost of Debt2.13%

Tax Rate12.52%

After-tax Cost of Debt1.86%

Equity Weight (E/V)99.27%

Debt Weight (D/V)0.73%

WACC Calculation

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

WACC = (99.27% × 12.60%) + (0.73% × 1.86%)

= 12.53%

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	$4.2B	$5.9B	$6.9B	$7.4B	$8.3B
EBIT	$1.0B	$1.4B	$1.7B	$1.8B	$2.0B
Tax	$126M	$179M	$210M	$228M	$256M
NOPAT	$880M	$1.2B	$1.5B	$1.6B	$1.8B
+ Depreciation	$152M	$216M	$250M	$269M	$300M
- Capex	$230M	$327M	$378M	$406M	$454M
- Δ NWC	$232M	$222M	$58M	$62M	$69M
Free Cash Flow	$570M	$916M	$1.3B	$1.4B	$1.6B
Discount Factor	0.889	0.702	0.554	0.438	0.307
Present Value	$507M	$643M	$709M	$609M	$481M

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.6B

Terminal Growth Rate3.75%

WACC12.53%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$18.5B

PV of Terminal Value$5.7B

Exit Multiple Method

Year 10 EBITDA$2.3B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$65.7B

PV of Terminal Value$20.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$6.0B

PV of Terminal Value$5.7B

Enterprise Value$11.7B

(-) Net Debt$53M

Equity Value$11.6B

Shares Outstanding156M

Price per Share$74.37

Exit Multiple Method

PV of Projected FCFs$6.0B

PV of Terminal Value$20.2B

Enterprise Value$26.2B

(-) Net Debt$53M

Equity Value$26.1B

Shares Outstanding156M

Price per Share$167.03

Pure Model Fair Value

$120.70

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%
10.53%	$143.44	$145.24	$147.30	$149.69	$152.50
11.53%	$130.13	$131.42	$132.88	$134.54	$136.44
12.53%	$118.69	$119.64	$120.70	$121.90	$123.24
13.53%	$108.71	$109.43	$110.23	$111.11	$112.09
14.53%	$99.93	$100.48	$101.09	$101.76	$102.49

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

$82.90

-72.5% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 2.25

Base Case

$120.70

-59.9% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.80

Bull Case

$166.50

-44.7% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.53

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth31.18%

Year 3 Revenue Growth19.08%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin24.04%

Terminal EBIT Margin25.00%

Tax Rate12.52%

Historical Capex / Rev5.50%

NWC / Revenue23.30%

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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