STMicroelectronics N.V. (STM)

Total return at 5 years: 2.6%/year = 2.0% appreciation + 0.7% dividend. The target price ($58) is ex-dividend; the $2 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $48 · Multiples $48) is below the market price ($52).

Today — expensive, no margin of safety: at $52 trades ~9.3% above its value discounted to today (~$48); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($58) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$30.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($52) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (7.0%/year) above our base case (5.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$2.1 bn of owner earnings in year 5 (vs ~$2 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = twelve-month window ended June 27, 2026, built by levels: fiscal 2025 from the annual report plus the first half of 2026 minus the first half of 2025 (revenue 11,800 + 6,582 − 5,283 = 13,099; operating income 175 + 257 − (−130) = 562, or 4.3%; attributable income 166 + 259 − (−41) = 466). The company files an annual report and publishes its quarters by press release, which carries no tagged data, so the window cannot be read from structured data: it is built from the three- and six-month statements in the July 23, 2026 press release. Capital expenditure: the tagged concept for payments for property, plant and equipment has been abandoned since 2010, so investment is taken from the cash flow statement and the press release itself (net investment of 409 million in the quarter against 465 a year earlier). The window closes with operating cash flow of 2,259 million and net investment of 1,567 million (published Net Capex, which includes capital subsidy advances allocated to fixed assets), or 692 million of free cash flow before the acquisition; the published free cash flow of −261 million includes an 895 million outflow for the first-quarter-2026 purchase of NXP's microelectromechanical sensor business, i.e. expansion and acquisition capital, not operating deterioration. Depreciation and amortization for year 0 uses fiscal 2025 (1,854 million) because the press release publishes only quarters and does not give a comparable first quarter of 2025: this is disclosed rather than estimated. Tax rate 18.1% = the estimated annual effective tax rate before discrete items for 2026 that the company publishes in the income tax note of its first-half-2026 interim report (against the actual 19.3% for 2025 before discrete items). The reported charge of 40 million on pre-tax income of 308 in the half gives 13.0%, but that ratio is contaminated by discrete items and is not the normalized rate; fiscal 2025's effective rate (220 on 400, or 55%) is an even larger artifact, of a near-zero pre-tax result. Mid-cycle normalization: the operating margin over the last nine fiscal years runs 12.0 · 14.5 · 12.6 · 12.9 · 19.0 · 27.5 · 26.7 · 12.6 · 1.5 percent, averaging 15.5%. The base-case path converges to that midpoint, not to the 2025 floor nor to the 2022-2023 peak, and the exit multiple sits at the floor of the semiconductor archetype's band. Maintenance capital by Greenwald: with revenue recovering from the trough, the excess of investment over depreciation buys capacity (300-millimeter wafers in Crolles and Agrate, silicon carbide in Catania), so maintenance is set at 82% of total investment and falls below depreciation in year 0, which is what corresponds to a fiscal year of under-investment. Debt and shares: the diluted count rose from 893.9 to 928.0 million between the two quarters. The jump is the quarter's return to positive results — which readmits all dilution from share awards, warrants and convertibles that was excluded as antidilutive in the loss-making quarter — plus dilution from the new 1,500 million convertible in two tranches (2031 and 2033) issued on June 23, 2026, not the announced early redemption of the 750 million convertible maturing 2027 (a redemption retires potential dilution, it does not add to it). The bridge's debt is total financial debt of 4,025 million, with no exception for the tranche under redemption — which as of June 27, 2026 remains within total financial debt, classified as current —, against total liquidity of 6,032, for a net financial position of 2,007. No buyback is modeled: the count is rising, and share-based compensation dilution is already expensed in the metric. The surplus is redeployed: the adjusted net financial position runs 2,311 · 2,265 · 2,456 · 1,686 · 1,701 million over the last five quarters, i.e. flat to slightly down while the company invests, acquires and distributes, so cash does not accumulate. Non-controlling interest: 14 million on 166 in the depressed 2025 fiscal year, but 9 on 268 in the first half of 2026, or 3.4% on a normalized basis; the entire valuation runs on the amount attributable to the parent.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $58 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $52, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $58 in 5 years plus $2 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $48. Against the current market price ($52), the margin of safety is -9.3% (trades above the maximum → a premium is paid) and the total return at that price would be 2.6% annually.

• Entry multiple. It is bought today at 101× on a cycle-trough metric. The number is not interpretable as cheap or expensive in static terms: it is the effect of a depressed denominator.
• Five-year multiple. It compresses to 16× on the terminal-year metric: that compression is the entirety of the thesis and depends on the margin reaching the midpoint of the historical range.
• Exit multiple. Floor of the semiconductor archetype's band, due to cyclicality, a narrow moat, and a return on capital that only slightly clears the 10% bar at mid-cycle.
• Estimated return. +3% annually over five years at $52, with +2% from appreciation and +1% from dividends.
• Scenario range. The adverse scenario returns +3% annually and the favorable one +3%: the dispersion is that of a cyclical, and the asymmetry does not favor the buyer at this price.
• Dividend yield. 0.7% at market price, with ample coverage at mid-cycle but tight coverage against the current window's earnings.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (214%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 2.9% in the current window, well below the 10% bar; at mid-cycle, with margin at the midpoint of the historical range, it sits around 13%.
• Cash generation. Operating cash flow of $2,259M in the window, only 3.1% below the equivalent prior window despite the collapse in operating income.
• Cash conversion. Reported free cash flow is negative ($-261M) but includes $895M of acquisition spending; excluding it, free cash flow is a positive $634M.
• Stock-based compensation. $193M in 2025, 1.6% of revenue. It is expensed within operating income, the valuation metric, so there is no double counting.
• Predictability. Low: the operating margin ranged from 1.5% to 27.5% over nine fiscal years. That is why the exit multiple is set at the floor of its band.
• Capital intensity. Capital investment near 20% of revenue between 2023 and 2025 and depreciation growing 52% since 2022: every point of underutilization comes at a high price.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

A semiconductor manufacturer's revenue engine breaks down into volume times average selling price, and the company reports both. In 2025 volumes fell approximately 5% and average prices 6%, with the damage concentrated in power and discrete (prices 29% lower). The cycle reads best in the relationship between depreciation and operating income: the former grew 52% between 2022 and 2025 while the latter fell 96%, which is the definition of a capital-intensive business caught in underutilization. The recovery is measured by the same pair, in the opposite direction.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (27-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue trajectory. Peak of $17,286M in 2023, trough of $11,800M in 2025, and a turn to $13,099M in the window through June 27, 2026.
• Current guidance. Third quarter of 2026 at $3,700M of revenue and 37.0% gross margin at the midpoint, with bands of 350 and 200 basis points.
• New structural leg. Data centers: ambition raised to above US$1,000M for 2026 and well above US$2,000M for 2027, per the July 23, 2026 press release; low-earth-orbit satellite communications is the second new growth leg disclosed.
• Growth through acquisition. The $895M purchase of NXP's MEMS sensors business in the first quarter of 2026 adds product, not just capacity.
• Volume versus price. In 2025 both pulled the wrong way: volumes down 5% and average prices down 6%. The second-quarter 2026 turn is driven by volume, not price.
• Reinvestment runway. Capital investment guided at $2,000M to $2,200M for 2026, directed at 300-millimeter wafers and silicon carbide: there is somewhere to put the capital.

• Recurrence of end demand. Automotive and industrial are the main end markets, but the annual report itself describes the industry as having short product life cycles and significant price erosion, and warns that customers' product strategies can shift with short-term specifications.
• Differentiated or commodity product. Mixed: microcontrollers and sensors are differentiated; power discretes behave as a commodity product, with average prices 29% lower in 2025.
• Pricing power. Absent at the consolidated level: average prices fell 6% in 2025, and the company attributes the decline to unfavorable mix and lower selling prices.
• Operating leverage. Very high and double-edged: operating income fell 96% between 2022 and 2025 with revenue 27% lower. The same lever works on the upside during the recovery.
• Behavior in the downturn. Fiscal 2025 was a severe downturn: 1.5% operating margin and $376M of charges. The company held positive net income and a positive net financial position.
• Share and trend. The annual report does not publish verifiable market share versus third parties; the claim is omitted rather than estimated.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $2 bn
• ✓Interest coverage (EBIT / interest)9.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 214% of ROIC
• ✕Value creation (ROIC − 10% bar)-7pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• !Float / working capitalConsumes cash $0 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 1.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Liquidity. $6,032M across cash, short-term deposits, and marketable securities as of June 27, 2026, plus $1,191M equivalent of undrawn committed credit lines.
• Debt. $4,025M of total financial debt after the $1,500M convertible issuance; the report states it does not impose minimum financial ratios.
• Net position. Positive at $2,007M, though down from $2,789M at year-end 2025 due to the acquisition and capital investment.
• Inventory. $3,190M at the close of the second quarter of 2026, essentially unchanged from $3,170M in the prior quarter.
• Capital subsidies. US$306M of advances received for capital subsidies whose underlying investment has not yet been executed (adjusted net financial position of US$1,701M): cost-free financing for the ongoing expansion.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Breakdown of cash uses for the twelve-month window ended June 27, 2026: net capital expenditure US$1,567M, purchase of NXP's microelectromechanical sensor business US$895M, share buybacks US$367M, and dividends US$321M, on a total of US$3,150M. Nearly half goes to own capacity and a bit over a quarter to the acquisition; shareholder returns take up just over a quarter. This is the allocation of a company mid-transformation of its industrial footprint, not one returning cash.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Of the window's cash uses, half went to owned capacity and a bit more than a quarter to the acquisition of NXP's sensors business; shareholder returns came in below a quarter.
• Alignment. Control is exercised by a vehicle of the French and Italian states holding 27.5% of the capital, and the report warns its political interests may diverge from those of other shareholders.
• Candor. The report quantifies the charges in detail ($189M of impairment, $176M of restructuring, and $11M of discontinuation costs) and publishes volume and price by segment.
• Return policy. Dividend raised from $0.24 to $0.36 in 2024 and held through the worst fiscal year of the cycle, with buybacks stable around $350M-$370M annually.

• Missing buyers at the bottom of the cycle: fiscal 2025 closed with a 1.5% operating margin and $376M of impairment and restructuring charges, so the multiple on reported earnings looks absurd and scares off anyone looking at the static snapshot.
• Free cash flow depressed by voluntary investment and an acquisition: the twelve-month window closes at US$-261M, which includes US$895M paid for NXP's microelectromechanical sensor business and net capital expenditure of US$1,567M against depreciation of US$1,854M.
• The price has already priced in much of the turn: the stock has retraced a large part of its fifty-two-week range from the low, so the gap between perception and reality has narrowed.

This section reads the opposite of an opportunity case: the market is already pricing in the recovery. As a subsequent event after fiscal year-end, the company disclosed the second-quarter 2026 issuance of a US$1,500M convertible in two tranches maturing in 2031 and 2033, and announced the early redemption of the US$750M convertible maturing 2027. The diluted share count rose from 893.9 to 928.0 million shares because of the quarter's return to positive results — which readmits all the dilution previously excluded as antidilutive in the loss-making quarter — and the dilution from the new convertible issued on June 23, 2026, not from the announced redemption, which retires potential dilution. The purchase of NXP's microelectromechanical sensor business for US$895M, paid in the first quarter of 2026, is also disclosed.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -13%/year (-50% total): the margin of safety protects the downside. The bull (+13%/year, +87% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Industry cyclicality. The report lists it as a specific risk: excess installed capacity erodes prices and leaves high inventory. Fiscal 2025 is the proof, with a 1.5% operating margin.
• Tariffs and trade barriers. The report mentions the threat of a 100% tariff on chips imported into the United States and a Section 232 investigation opened in April 2025.
• Matching capacity to demand. In a downturn customers stop ordering ahead and forecasting becomes difficult; in an expansion, demand can outrun capacity because of the lead time needed to react.
• Competition and consolidation. The report describes the markets as intensely competitive and anticipates vertical and horizontal consolidation among suppliers, competitors, and customers.
• State controlling shareholder. 27.5% of the capital held by a vehicle of the French and Italian states, with the report itself warning of potential conflicts of interest and the possibility that the stake could be sold.
• Dependence on public funding. The Crolles, Catania, and Agrate projects rely on state support programs; the report warns their objectives may not be met.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 3% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 20.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 1% (EBIT/EV) + ROIC 3% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 7%, in line with our 5%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -14%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: switching costs, efficient scale, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 7% vs our 5%: coherent, but at the optimistic end of the range.