Broadcom Intrinsic Value Calculated at $207.48 Versus $332.54 Market Price
Broadcom's earnings-based DCF intrinsic value is $207.48 compared to its $332.54 trading price, implying a -60.28% margin of safety. A free cash flow DCF model yields an intrinsic value of $173.22, indicating a -91.98% margin of safety.
1. Earnings-Based DCF Model
The valuation uses a two-stage discounted earnings model based on EPS without NRI, reflecting research that earnings correlate more closely with stock prices than free cash flow. It separates a high-growth phase from a terminal phase to estimate present value.
2. Growth and Discount Assumptions
The model applies a 19.60% annual growth rate for the first ten years and a 4% rate for the subsequent ten-year terminal phase. It discounts future earnings at 11%, derived from a 5% risk-free rate plus a 6% equity risk premium, to calculate present value.
3. Intrinsic Value Calculation
Projected earnings yield $105.19 in the growth phase and $102.29 in the terminal phase, summing to an intrinsic value of $207.48 per share. This compares with a current trading price of $332.54, resulting in a -60.28% margin of safety.
4. Free Cash Flow DCF Results
A parallel DCF using trailing twelve-month free cash flow per share produces an intrinsic value of $173.22, implying a -91.98% margin of safety versus the market price. This suggests a more pronounced overvaluation under traditional cash flow measures.