Current Price: ~ $34/share

Projected Yield: ~ 2.04%

Dallas-based Texas Instruments generates about 96% of its revenue from semiconductors and 4% from its well-known calculators. TI is the world's largest maker of analog chips, which are used to process real-world signals, such as sound and power. TI also has a leading market share position in digital signal processors, used in wireless communications, and has a growing mobile processor business line that is used to run software and applications in many popular smartphones and tablets.

Estimated WACC for the firm today is 11.92% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year | FCF $Millions |

2002 | 1190 |

2003 | 1351 |

2004 | 1848 |

2005 | 2442 |

2006 | 1188 |

2007 | 3720 |

2008 | 2567 |

2009 | 1890 |

2010 | 2621 |

2011 | 2440 |

Average Annual Growth FCF: ~ 24%

CAGR FCF: ~ 8%

Consensus Forecast Industry 5-Year Growth: ~ 15% per year

Consensus Forecast Company 5-Year Growth: ~ 7% per year

Internal Growth Rate: ~ 10%

Sustainable Growth Rate: ~ 17%

**Scenario 1**

Average FCF (2011, 2010, 2009) is $2317 million

- Start at $2317 million FCF
- Assume a 5-year growth rate in FCF of 7% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 2317 |

1 | 2479 |

2 | 2653 |

3 | 2838 |

4 | 3037 |

5 | 3250 |

Terminal Value | 29163 |

The firm's future cash flows, discounted at a WACC of 11.92%, give a present value for the entire firm (Debt + Equity) of $26748 million. If the firm's fair value of debt is estimated at $4600 million, then the fair value of the firm's equity could be $22148 million. $22148 million / 1140 million outstanding shares is approximately $19 per share and a 20% margin of safety is $15/share.

**Scenario 2**

All else being equal,

- Assume a 5-year growth rate in FCF of 7% per year, then 6% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year | FCF $Millions |

0 | 2,317 |

1 | 2479 |

2 | 2653 |

3 | 2838 |

4 | 3037 |

5 | 3250 |

Terminal Value | 58705 |

- Present Value of the entire firm (Debt + Equity): $43568 million
- Value of Equity: $38968 million or $34/share
- 20% margin of safety is $27/share

Sources

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.