Texas Instruments IncorporatedTXNNASDAQ

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DCF Valuation

DCF Valuation Summary

Buy

Fair Value: $239.92 per share(market-calibrated)

+18.5%

Upside to Fair Value

Current

$202.39

Pure Model

$239.15

Fair Value

$239.92

Bull Case

$321.16

Bear Case

$173.79

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

4.06%

Calibrated Growth

3.80%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $239.15.

What's Driving This Ratingfor TXN

↓

CapEx normalizing toward maintenance

Historical CapEx is 22.28% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$5.6B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 43.72% 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 10.67% in Year 1 to 1.71% by Year 5 (per analyst consensus). That's below the 3.75% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. 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 $191.52/share (22.4x terminal FCF) while exit multiple gives $286.78/share (37.0x 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.

✓

Model and market roughly agree

Market-implied terminal growth of 4.06% is close to the model's 3.75% (only 31bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.64% indicates efficient cash generation. FCF reaches $13.3B by Year 10 (38.84% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.98

Market Risk Premium4.50%

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

Cost of Equity (Re)8.91%

Cost of Debt

Pre-tax Cost of Debt2.34%

Tax Rate12.42%

After-tax Cost of Debt2.05%

Equity Weight (E/V)92.28%

Debt Weight (D/V)7.72%

WACC Calculation

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

WACC = (92.28% × 8.91%) + (7.72% × 2.05%)

= 8.38%

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	$19.6B	$23.9B	$29.5B	$30.9B	$34.1B
EBIT	$8.6B	$10.5B	$12.9B	$13.5B	$14.9B
Tax	$1.1B	$1.3B	$1.6B	$1.7B	$1.9B
NOPAT	$7.5B	$9.2B	$11.3B	$11.8B	$13.1B
+ Depreciation	$1.5B	$1.8B	$2.3B	$2.4B	$2.6B
- Capex	$4.4B	$4.5B	$4.4B	$3.5B	$2.0B
- Δ NWC	$566M	$696M	$149M	$229M	$370M
Free Cash Flow	$4.1B	$5.8B	$9.0B	$10.4B	$13.3B
Discount Factor	0.923	0.786	0.669	0.569	0.447
Present Value	$3.7B	$4.6B	$6.0B	$5.9B	$5.9B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$13.3B

Terminal Growth Rate3.75%

WACC8.38%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$297.4B

PV of Terminal Value$133.1B

Exit Multiple Method

Year 10 EBITDA$17.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$491.0B

PV of Terminal Value$219.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$53.2B

PV of Terminal Value$133.1B

Enterprise Value$186.3B

(-) Net Debt$12.2B

Equity Value$174.1B

Shares Outstanding909M

Price per Share$191.52

Exit Multiple Method

PV of Projected FCFs$53.2B

PV of Terminal Value$219.6B

Enterprise Value$272.8B

(-) Net Debt$12.2B

Equity Value$260.7B

Shares Outstanding909M

Price per Share$286.78

Pure Model Fair Value

$239.15

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%
6.38%	$308.97	$327.42	$352.89	$390.34	$390.02
7.38%	$260.52	$270.59	$283.44	$300.40	$323.81
8.38%	$225.56	$231.69	$239.15	$248.41	$260.23
9.38%	$198.46	$202.47	$207.19	$212.84	$219.70
10.38%	$176.48	$179.24	$182.42	$186.11	$190.47

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

$173.79

-14.1% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.22

Base Case

$239.15

18.2% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 0.98

Bull Case

$321.16

58.7% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 0.83

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth10.67%

Year 3 Revenue Growth10.75%

Year 5 Revenue Growth1.71%

Year 7 Revenue Growth2.53%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin43.72%

Tax Rate12.42%

Historical Capex / Rev22.28%

Terminal Capex / Rev6.00%

NWC / Revenue30.00%

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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