Teradyne, Inc.TERNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $167.21 per share(market-calibrated)

-45.0%

Upside to Fair Value

Current

$304.22

Pure Model

$121.55

Fair Value

$167.21

Bull Case

$167.91

Bear Case

$83.34

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 31.68% 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 $74.86/share (11.8x terminal FCF) while exit multiple gives $168.23/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 $304.22. 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)99.28%

Debt Weight (D/V)0.72%

WACC Calculation

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

WACC = (99.28% × 12.60%) + (0.72% × 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	$6.0B	$6.9B	$7.4B	$8.3B
EBIT	$1.0B	$1.4B	$1.7B	$1.8B	$2.1B
Tax	$126M	$180M	$211M	$229M	$258M
NOPAT	$883M	$1.3B	$1.5B	$1.6B	$1.8B
+ Depreciation	$153M	$217M	$252M	$271M	$302M
- Capex	$231M	$329M	$380M	$410M	$457M
- Δ NWC	$236M	$226M	$58M	$63M	$70M
Free Cash Flow	$570M	$919M	$1.3B	$1.4B	$1.6B
Discount Factor	0.889	0.702	0.554	0.438	0.307
Present Value	$506M	$645M	$714M	$613M	$485M

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$18.7B

PV of Terminal Value$5.7B

Exit Multiple Method

Year 10 EBITDA$2.4B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$66.2B

PV of Terminal Value$20.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$6.0B

PV of Terminal Value$5.7B

Enterprise Value$11.8B

(-) Net Debt$53M

Equity Value$11.7B

Shares Outstanding156M

Price per Share$74.86

Exit Multiple Method

PV of Projected FCFs$6.0B

PV of Terminal Value$20.3B

Enterprise Value$26.4B

(-) Net Debt$53M

Equity Value$26.3B

Shares Outstanding156M

Price per Share$168.23

Pure Model Fair Value

$121.55

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%	$144.45	$146.26	$148.34	$150.75	$153.57
11.53%	$131.04	$132.34	$133.81	$135.48	$137.40
12.53%	$119.51	$120.47	$121.55	$122.75	$124.10
13.53%	$109.46	$110.19	$110.99	$111.88	$112.87
14.53%	$100.62	$101.18	$101.79	$102.46	$103.20

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

$83.34

-72.6% vs current

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

Base Case

$121.55

-60.0% vs current

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

Bull Case

$167.91

-44.8% 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 Growth31.68%

Year 3 Revenue Growth19.40%

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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