On June 01, 2026, we delve into the DCF analysis for Analog Devices Inc ADI, a company that has shown impressive price performance recently. Over the past year, ADI's stock has surged by 94.8%, reflecting strong market interest and performance. Here are some key points to consider:
- DCF Earnings-based intrinsic value of $227.83 vs current price of $413.85 (margin of safety: -81.7%)
- DCF FCF-based intrinsic value of $162.65 vs current price (second opinion indicates significant overvaluation)
- GF Scoreâ„¢ of 94/100, suggesting high reliability of the DCF inputs
What Is ADI Worth? DCF Earnings-Based Model
The DCF earnings-based model for Analog Devices Inc utilizes a two-stage approach to estimate the intrinsic value of the stock. The first stage accounts for a high growth rate over the next ten years, while the second stage reflects a more stable growth rate in the terminal phase. The assumptions used in this model are as follows:
| Parameter | Value |
|---|---|
| Current EPS (TTM, excl. non-recurring) | $9.86 |
| 10-Year Growth Rate | 15.5% |
| 10-Year Treasury Rate | 4.46% |
| Discount Rate (ceil(Treasury) + 6%) | 11% |
| Terminal Growth Rate | 4% |
In the first stage, the EPS is projected to grow at 15.5% per year for the next ten years, discounted at a rate of 11%. The growth stage value is calculated to be $123.49 per share. In the second stage, after year 10, the growth rate slows to a terminal rate of 4% for the next ten years, also discounted at 11%, resulting in a terminal stage value of $104.34 per share. The summary of the calculations is as follows:
| Stage | Description | Value |
|---|---|---|
| Growth Stage (Years 1-10) | EPS growing at 15.5%, discounted at 11% | $123.49 |
| Terminal Stage (Years 11-20) | 4% terminal growth, discounted at 11% | $104.34 |
| Intrinsic Value | Growth + Terminal | $227.83 |
Comparing the current price of $413.85 with the intrinsic value of $227.83 indicates that ADI is modestly overvalued, with a margin of safety of -81.7%. It is important to note that GuruFocus uses EPS excluding non-recurring items, as research shows stock prices correlate more closely with earnings than with free cash flow. For further details, visit the ADI DCF Calculator.
What Does the Free Cash Flow DCF Say?
The free cash flow (FCF) based DCF model provides an alternative perspective on ADI's intrinsic value, calculated at $162.65 per share. When comparing this value with the earnings-based intrinsic value of $227.83, we see a significant discrepancy. This suggests that the FCF model indicates ADI is significantly overvalued, with a margin of safety of -154.4%.
How Does GF Valueâ„¢ Compare to the DCF Models?
The GF Value™ for Analog Devices Inc is calculated at $293.83, providing a third perspective on the valuation of the stock. GF Value™ is GuruFocus' proprietary measure, derived from historical trading multiples, past business growth, and future performance estimates. When comparing all three models—DCF earnings, DCF FCF, and GF Value™—it is clear that they all agree on the valuation status of ADI being overvalued. For more insights, visit the GF Value™ page.
What Does ADI's GF Scoreâ„¢ Tell Us?
The GF Scoreâ„¢ ranks stocks from 0 to 100 based on five key aspects: Financial Strength, Profitability, Growth, Valuation, and Momentum. Stocks with higher GF Scoreâ„¢ values have been found to generate higher long-term returns based on backtested results from 2006 to 2021. Below is a summary of ADI's GF Scoreâ„¢ metrics:
| Metric | Rating |
|---|---|
| GF Scoreâ„¢ | 94/100 |
| Financial Strength | 7/10 |
| Profitability | 9/10 |
| Growth | 10/10 |
| Valuation | 5/10 |
| Momentum | 9/10 |
With a predictability rank of 1/5 stars, it indicates that the DCF model may be less reliable for this stock. For more information, visit the ADI stock page.
Key Assumptions and Limitations
It is essential to recognize that DCF models are highly sensitive to the assumptions made regarding growth rates and discount rates. Stocks with low predictability ratings, such as ADI's 1/5 stars, tend to produce less reliable DCF estimates. Additionally, the terminal growth rate of 4% is a simplifying assumption that may not reflect future market conditions accurately.
What This Means for Investors
In summary, the three valuation models—DCF earnings, DCF FCF, and GF Value™—all indicate that Analog Devices Inc is currently overvalued. The significant discrepancies in intrinsic values suggest caution for potential investors.
For the full DCF analysis, visit the ADI DCF Calculator. You can also explore the GF Valueâ„¢ page, or use the GuruFocus Stock Screener to find undervalued predictable companies.
Frequently Asked Questions
What is ADI's intrinsic value based on DCF?
Answer: earnings-based $227.83, FCF-based $162.65
Is ADI overvalued or undervalued?
Answer: Based on DCF and GF Valueâ„¢ consensus, ADI is overvalued.
How reliable is the DCF model for ADI?
Answer: The predictability rank of 1/5 suggests the DCF model is less reliable for ADI.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
